that maintains the stability and

public confidence in the nation’s

financial system by insuring

deposits, examining and supervising

financial institutions, and managing

receiverships.

agencies, the Federal Deposit Insurance

Corporation (FDIC) promotes the safety 

and soundness of the U.S. financial system

and the insured depository institutions by

identifying, monitoring and addressing risks

to the deposit insurance funds.

The FDIC promotes public understanding

and the development of sound public policy

by providing timely and accurate financial

and economic information and analyses. It

minimizes disruptive effects from the failure

of banks and savings association. It assures

fairness in the sale of financial products

and the provision of financial services.

The FDIC’s long and continuing tradition 

of excellence in public service is supported

and sustained by a highly skilled and diverse

workforce that continuously monitors and

responds rapidly and successfully to changes

in the financial environment.

To view the complete 2005 Annual Report, 

visit our Web site at: www.fdic.gov
new and existing risks in the

nation’s financial system, and

effectively carrying out its insurance, supervisory, and receivership

management responsibilities.

Integrity

FDIC employees adhere to the

highest ethical standards in the

performance of their duties and

responsibilities.

Competence

The FDIC maintains a highly

skilled, dedicated, and diverse

workforce.

Teamwork 

FDIC employees work cooperatively

with one another and with employees in other regulatory agencies

to accomplish the Corporation’s

mission.

Effectiveness 

The FDIC responds quickly and

successfully to identified risks in

insured financial institutions and

in the broader financial system.

Financial Stewardship

The FDIC acts as a responsible

fiduciary, consistently operating 

in an efficient and cost-effective

manner on behalf of insured

financial institutions and other

stakeholders.

Fairness 

The FDIC treats all employees,

insured financial institutions, 

and other stakeholders with

impartiality and mutual respect.
I am pleased to present the Federal Deposit Insurance Corporation’s

(FDIC) Annual 2005 Performance and Accountability Report

(Annual Report), a comprehensive overview of the FDIC’s programs

and performance for the calendar year. The FDIC has been and 

will continue to be exceedingly well served by the professionalism

and dedication of its staff. I am honored to have the opportunity 

to report the important results and accomplishments of their 

activities in 2005.

I assumed my duties as Acting Chairman on November 15, 2005,

upon the resignation of Chairman Donald Powell, who, at President

Bush’s request, departed the FDIC to take charge of coordinating

the federal government’s efforts towards rebuilding of the Gulf

Coast following the unprecedented natural disasters of Hurricanes

Katrina and Rita. For the FDIC, the year will be remembered for

these storms and their effect on Gulf Coast banks. Our top priority

was ensuring stability and public confidence in the region’s banking

system. We worked around the clock with our fellow banking 

regulators, financial institutions and the public so that consumers

and businesses could quickly regain access to needed financial

services. We actively monitored the operational condition of financial

institutions in the region until our concerns were mitigated. And 

we joined other regulators in encouraging banks to work with 

borrowers affected by the hurricanes. Once again, the federal

deposit insurance system served the public well by providing 

certainty to the citizens of the Gulf Coast with respect to the 

safety of their funds in their time of crisis.

The region’s banking industry will be dealing with the consequences

of the storms for some time to come. In 2006, we will continue to

work closely with affected banks and consumers to address those

issues.
3

for the challenges of the future in many areas. 

We continued working toward securing Congressional passage 

of deposit insurance reform. This legislation, signed by President

Bush on February 8, 2006, combines the Bank Insurance Fund

and Savings Association Insurance Fund and allows the FDIC 

to better price deposit insurance for risk.

We devoted substantial resources to the interagency process for

implementing the Basel II Accord in the United States. The FDIC’s

efforts highlighted the need to maintain existing U.S. Prompt

Corrective Action standards under Basel II, and to find ways to

address concerns identified by the fourth quantitative impact 

study (QIS-4).

Our Center for Financial Research (CFR) co-sponsored two premier

research conferences, both attracting over 100 prominent researchers

and banking scholars from the United States and abroad. Also, 

14 CFR working papers were published on topics such as riskmeasurement and capital allocation regulations.

Along with members of FFIEC–the Federal Reserve Board and 

the Office of the Comptroller of the Currency–we successfully

implemented the Central Data Repository (CDR), a web-based 

system to collect, validate and manage quarterly Call Report data.

The CDR employs a new flexible data standard XBRL (eXtensible

Business Reporting Language)–enabling Call Report data to be

shared more easily and compared more readily with other financial

data.

As part of our continuing effort to improve our response to a potential

large-bank failure, we sought comments on the best way to enhance

the deposit insurance determination process. Given the increasing

concentration of banking assets in a small number of the largest 

federally-insured institutions, we identified this as a major priority. 

We are conducting a thorough review of our policies, systems 

capabilities, interagency communication procedures and workforce

readiness to ensure that we are better prepared to properly manage

the failure of a large bank or thrift.
We established the new Anti-Money Laundering and Financial Crimes

Branch within our Division of Supervision and Consumer Protection

to better focus attention on increasing responsibilities in these areas.

This Branch will address issues related to the Bank Secrecy Act,

compliance, money laundering, financial crimes, terrorist financing

and cyber-fraud. 

We continued to be a leader in helping banks to combat identity theft.

The publication of our study, Putting an End to Account-Hijacking

and Identity Theft, and a Study Supplement led to the issuance 

of FFIEC guidance in October 2005 requiring financial institutions 

to use stronger customer authentication techniques for Internet

banking by year-end 2006. We also sponsored four identity theft

symposiums around the country to educate the public and raise

awareness about account hijacking and identity theft. 

We conducted a summer-long media campaign to raise awareness

of the importance of financial education in Hispanic communities

across the nation using the FDIC’s free Money Smart financial 

education program. 

As the foregoing accomplishments illustrate, the FDIC continued to

serve the deposit insurance system and the public well. In no case

was this truer than for the citizens of the Gulf Coast who were able

to rely on the guarantee of federal deposit insurance despite the

uncertainties they were facing on other fronts. It is a testament to

the strength and effectiveness of the system created over 70 years

ago.

For me personally, it is an honor to serve as Acting Chairman until 

a permanent successor is named. 

Sincerely,

Martin J. Gruenberg

4
5

I am pleased to report that overall, the deposit insurance funds

remained financially sound and exhibited healthy earnings

throughout 2005. Additionally, estimated losses from probable 

failures for both the Bank Insurance Fund (BIF) and the Savings

Association Insurance Fund (SAIF) remain at or near historically 

low levels for both deposit insurance funds.

For the fourteenth consecutive year, the U.S. Government

Accountability Office (GAO) issued unqualified audit opinions 

on the three funds administered by the FDIC (BIF, SAIF and the

Federal Savings and Loan Insurance Corporation (FSLIC) Resolution

Fund). We are especially proud of this record and have dedicated

ourselves to ensuring that it continues in 2006 and beyond.

Financial highlights during 2005 include:

The BIF reported comprehensive income (net income plus current

period unrealized gains/losses on available-for-sale (AFS) securities)

of $680 million in 2005 compared to $1.004 billion in 2004. This

reduction of $324 million was primarily due to an increase in 

unrealized losses on AFS securities of $279 million, lower recoveries

of prior years’ provisions for insurance losses of $143 million, 

an increase in operating expenses of $25 million, and a decrease 

in assessment revenues of $43 million, offset by an increase of

$161 million in interest revenue on U.S. Treasury obligations. As 

of December 31, 2005, the fund balance was $35.5 billion, up 

from $34.8 billion at year-end 2004.

The SAIF reported comprehensive income of $409 million in 

2005, compared to $480 million in 2004. This reduction of $71 million

was primarily due to an increase in unrealized losses on AFS

securities of $93 million and lower recoveries of prior years’

provisions for insurance losses of $50 million, offset by a $73 million

increase in interest revenue on U.S. Treasury obligations. As of 

December 31, 2005, the fund balance was $13.1 billion, up from

$12.7 billion at year-end 2004.
6

a rise in Treasury market yields on short- to intermediate-maturity

AFS securities during 2005.

During 2005, we continued our efforts to provide effective stewardship of the resources of the funds managed by the FDIC. The

2006 Corporate Operating Budget, approved by the FDIC Board

of Directors on December 5, 2005, is 5 percent less than the 2005

Corporate Operating budget. Projected savings were achieved

primarily through significant staff reductions. Additionally, the 

completion of a number of major capital investment projects will

permanently reduce the Corporation’s cost base going forward. 

We are especially proud of our staff for successfully managing, 

to near completion, the Virginia Square facility expansion. The 

project is expected to be completed in early 2006 both on time and

under budget and will result in substantial savings over our current

leased space headquarters’ facilities.

The FDIC successfully implemented the New Financial Environment

(NFE), modernizing our aging, highly customized and complex 

financial systems environment. This major systems modernization

is part of our corporate-wide initiative to achieve greater operational

efficiencies, as well as to reduce the high costs of maintaining the

expensive and outdated legacy systems that were replaced or 

eliminated as a result of implementing NFE.

We successfully consolidated numerous existing information

technology (IT) contracts into fewer, longer-term strategic contracts.

These ten-year agreements encompass a broad range of IT services

including infrastructure management, application development and

maintenance, organizational and management support, data 

management and software process improvement. This IT contract

consolidation initiative is expected to reduce costs, improve services

and provide enhanced accountability.

With respect to the requirements of the Federal Managers’ Financial

Integrity Act of 1982, the FDIC’s management made an assessment

and concluded that the system of internal controls, taken as a whole,

complies with internal control standards prescribed by the GAO

and provides reasonable assurance that the related objectives are

being met.
7

timely information and analysis on the financial condition of both

the banking industry and the FDIC-managed funds.

Sincerely,

Steven O. App
8

that occurred this past year tested our readiness, but it also underscored the critical importance of our core mission–maintaining 

stability of the nation’s financial system and public confidence in

insured depository institutions. 

Highlights of the Corporation’s 2005 accomplishments in each of its

three major business lines–Insurance, Supervision and Consumer

Protection, and Receivership Management–as well as in its program

support areas are presented in this section. 

Insurance

The FDIC insures bank and savings association deposits. As insurer,

the FDIC must continually evaluate and effectively manage how

changes in the economy, the financial markets and the banking 

system affect the adequacy and the viability of the deposit 

insurance funds.

Deposit Insurance Reform

The FDIC again gave priority attention to enactment of comprehensive deposit insurance reform legislation in 2005. 

Both the House and the Senate passed separate deposit insurance

reform bills in 2005. These bills were included as part of S.1932

budget legislation reconciliation that contained many provisions

unrelated to reform. 

The Senate took final action on S. 1932 on December 21, 2005,

passing the measure by voice vote. On February 1, 2006, the

House cleared the bill for action by the President by a vote of 216

to 214. The President signed the bill into law on February 8, 2006.

The Federal Deposit Insurance Reform Act of 2005, contained in 

S. 1932, includes the major provisions of the FDIC’s deposit insurance

reform proposals. H.R. 4636, the Deposit Insurance Reform

Conforming Amendments Act of 2005, contains the necessary

technical and conforming changes to implement deposit insurance

reform. H.R. 4636 was passed by the House and Senate in

December 2005, separately from S. 1932. Specifically, together 

S. 1932 and H.R. 4636 would: 

● Merge the Bank Insurance Fund (BIF) and the Savings Association

Insurance Fund (SAIF) into a new fund, the Deposit Insurance 

Fund (DIF), effective no later than July 1, 2006.

● Establish a range for the designated reserve ratio of 1.15 percent

to 1.50 percent. 
9

● Eliminate the connection between designated reserve ratio (DRR) 

and premium rates and grant the FDIC’s Board of Directors the 

discretion to price deposit insurance according to risk for all insured

institutions at all times.

● Mandate rebates to the industry of half of any amount above 

the 1.35 percent level, unless the FDIC’s Board of Directors, 

considering statutory factors, suspends the rebates.

● Mandate rebates to the industry of all amounts in the fund above

the 1.50 percent level.

● Grant a one-time initial assessment credit (of approximately 

$4.7 billion) to recognize institutions’ past contributions to the 

fund.

● Increase the coverage limit for retirement accounts to $250,000.

● Index this limit and the general deposit insurance coverage limit 

to inflation and allow the FDIC (in conjunction with the National 

Credit Union Administration) to increase the limits every five 

years beginning January 1, 2011, if warranted.

Implementation of deposit insurance reform will be one of the

FDIC’s main priorities for 2006. 

International Capital Standards 

The FDIC, as insurer, has a substantial interest in ensuring that bank

capital regulation effectively serves its function of safeguarding the

federal bank safety net against excessive loss. During 2005, the

FDIC participated on the Basel Committee on Banking Supervision

(BCBS) and many of its subgroups. The FDIC also participated in

various U.S. regulatory efforts aimed at interpreting international

standards and establishing sound policy and procedures for implementing these standards. 

The BCBS, jointly with the International Organization of Securities

Commissions (IOSCO), published The Application of Basel II to

Trading Activities and the Treatment of Double Default Effects in

July 2005. The document sets forth new capital treatments for

over-the-counter derivatives and short term, repo-style transactions,

hedged exposures, trading book exposures, and failed securities

trades. 
10

ing (NPR) and examination guidance, which is intended to provide

the industry with regulatory perspectives for implementation.

Additionally, the fourth quantitative impact study (QIS-4), which 

was begun in 2004 to assess the potential impact of the Revised

Framework on financial institution and industry-wide capital levels,

was completed. The QIS-4 findings suggested that, without 

modification, the Basel II framework could result in an unacceptable

decline in minimum risk-based capital requirements. As a result, 

on September 30, 2005, the domestic bank and thrift regulatory

authorities issued a joint press release stating that while they intend

to move forward with the Basel II NPR, prudential safeguards must

be incorporated into the Basel II framework to address the concerns

created by the QIS-4 findings. FDIC-supervised institutions that 

plan to operate under the new Basel Capital Accord are making 

satisfactory progress towards meeting the expected requirements.

Domestic Capital Standards 

The FDIC led the development of efforts to revise the existing riskbased capital standards for those banks that will not be subject to

Basel II. These efforts are intended to: (a) modernize the risk-based

capital rules for non-Basel II banks to ensure that the framework

remains a relevant and reliable measure of the risks present in the

banking system, and (b) minimize potential competitive inequities

that may arise between banks that adopt Basel II and those banks

that remain under the existing rules. An Advance Notice of Proposed

Rulemaking reflecting these efforts was published in October 2005,

with a comment period extended to January 2006. These revisions

are currently anticipated to be finalized by domestic bank and thrift

regulatory authorities in 2007 for implementation in January 2008.

Regulatory Burden Reduction Initiatives

The Economic Growth and Regulatory Paperwork Reduction Act 

of 1996 (EGRPRA) requires the banking agencies to solicit public

comments to identify outdated or burdensome regulations, review

the comments, and publish a summary in the Federal Register. The

agencies must also eliminate unnecessary regulations to the extent

appropriate. Finally, the Federal Financial Institutions Examination

Council must report to Congress the significant issues and the

merit of the issues raised during the public comment period and

provide an analysis of whether the agencies are able to address 

the issues by regulation or whether the burdens must be addressed

by legislative action. During 2005, the agencies published two notices

in the Federal Register seeking comments on 56 regulations covering
11

The agencies, as part of the EGRPRA initiative to gather recommendations on regulatory burden reduction, held three outreach

meetings with bankers in Phoenix, New Orleans and Boston; two

meetings with community groups in Boston and Washington, DC;

and three joint banker-community group meetings in Los Angeles,

Kansas City and Washington, DC. Significant issues have been 

raised and the agencies are in the process of weighing the issues. 

The major success of the EGRPRA project to date is that the 

agencies, the industry and consumer groups were able to have 

an open dialogue about regulatory burden. Over 180 legislative 

proposals for regulatory relief were presented to Congress through

testimony by the agencies, the industry and consumer advocates.

Moreover, effective September 1, 2005, the FDIC, the Office of 

the Comptroller of the Currency (OCC), and the Federal Reserve

Board (FRB) made changes to their uniform joint CRA regulations

that will provide regulatory relief for smaller community banks 

and–at the same time–preserve the importance of community

development in the CRA evaluations of these banks. 

Center for Financial Research

The FDIC’s Center for Financial Research (CFR) was established in

2003 to promote and support innovative research on topics relating

to deposit insurance, the financial sector, prudential supervision,

risk measurement and management, and regulatory policy that are

important to the FDIC’s roles as deposit insurer and bank supervisor.

The CFR is a partnership between the FDIC and the academic 

community with prominent scholars actively engaged in administering

its research program. The CFR carries out its mission through an

agenda of research, analysis, forums and conferences that encourage

and facilitate an ongoing dialogue that incorporates industry, academic

and public-sector perspectives. 

The CFR co-sponsored two premier research conferences 

during 2005. The fifteenth annual Derivatives Securities and 

Risk Management Conference, co-sponsored by the FDIC, Cornell

University’s Johnson Graduate School of Management, and the

University of Houston’s Bauer College of Business, was held in

April 2005. The CFR and The Journal for Financial Services Research

(JFSR) sponsored their fifth annual research conference, “Financial

Sector Integrity and Emerging Risks in Banking,” in September 2005.
12

in June to discuss ongoing CFR research on Basel II and payday

lending, and to discuss CFR activities for the coming year. 

FFIEC Central Data Repository

The FFIEC Central Data Repository (CDR) was successfully implemented on October 1, 2005. The CDR is designed to consolidate

the collection, validation and publication of quarterly bank financial

reports. This multi-year development effort was undertaken by the

FDIC, the FRB and the OCC, and in cooperation with the Call Report

software vendors and the banking industry. The CDR employs 

new technology that uses the XBRL (eXtensible Business Reporting

Language) data standard to streamline the collection, validation 

and publication of Call Report data. Over 8,000 financial institutions

were enrolled in the CDR and used it to file their financial reports

for the third quarter of 2005. The initial quality of the data was much

higher than in previous quarters, speeding the availability of the

data to our analysts and ultimately the public and fulfilling one 

of the overarching goals of the CDR project. Higher data integrity,

accuracy and consistency will help to increase the efficiency with

which the data can be collected, analyzed and released to the 

public.

Risk Analysis Center 

The Risk Analysis Center (RAC) established in 2003 to provide 

information about current and emerging risk issues is guided by 

its Management and Operating Committees–represented by the

Division of Supervision and Consumer Protection, the Division 

of Insurance and Research and the Division of Resolutions and

Receiverships. These Committees oversee and coordinate riskmonitoring activities that include presentations and reports regarding

risk issues, and special projects. The activities in the RAC are guided

by the National Risk Committee, which is chaired by the Chief

Operating Officer. Major projects in-process or completed for 2005

include the following: Evaluation of Operational and Reputation

Risk, Mortgage Credit Trends Analysis, Enhancing the Effectiveness

of the Regional Risk Committee Process, Quantification of Bank

Vulnerability to Rising Interest Rates, Hedge Funds, Market 

Data Repository, Offsite Monitoring, and Collateralized Debt

Obligations.
13

ad soudess oCsupesed sued depostoy sttutos,

protects consumers’ rights, and promotes community investment

initiatives by FDIC-supervised insured depository institutions.

At year-end 2005, the Corporation was the primary federal regulator

for 5,265 FDIC-insured, state-chartered institutions that are not

members of the Federal Reserve System (generally referred to as

“state non-member” institutions). Through safety and soundness,

consumer compliance and Community Reinvestment Act (CRA)

examinations of these FDIC-supervised institutions, the FDIC

assesses their operating condition, management practices and 

policies, and their compliance with applicable laws and regulations.

The FDIC also educates bankers and consumers on matters of

interest and addresses consumers’ questions and concerns.

Hurricane Recovery Assistance

The federal banking regulatory agencies (agencies) worked 

cooperatively with state banking regulatory agencies and other

organizations to determine the operating status of financial institutions

located in the areas affected by Hurricanes Katrina and Rita. The

agencies quickly released regulatory relief guidance to help rebuild

areas affected by these hurricanes and encouraged bankers to work

with consumers and business owners experiencing difficulties 

due to the storms. Exercising their authority under Section 2 of 

the Depository Institutions Disaster Relief Act of 1992 (DIDRA), the

agencies made exceptions to statutory and regulatory requirements

relating to appraisals for transactions involving real property in major

disaster areas when the exceptions would facilitate recovery from

the disaster and would be consistent with principles of safety and

soundness. 

In the wake of the 2005 hurricane season, the agencies confirmed

that the banking industry is resilient in the face of tremendous 

devastation. There were 280 financial institutions, with approximately $270 billion in total assets, operating in the area impacted 

by Hurricane Katrina. Only a handful of smaller institutions remain 

as supervisory concerns. The majority of institutions operating in 

the path of Hurricane Katrina were well-run, had strong management

teams, implemented sound back-up contingency plans, and were

well capitalized. 

The FFIEC established a formal Katrina Task Force to address policy

issues that continue to arise due to the severity and scale of these

natural disasters. The Katrina Task Force established a user-friendly,

Web-based, frequently asked questions forum on the FFIEC’s Web
14

pgg 

to obtain information about their financial institution’s operating 

status, as well as tips on other financial matters, such as replacing

identification documents, checks and credit cards.

Safety and Soundness Examinations 

As of December 31, 2005, the Corporation had conducted 2,399, 

or 100 percent of the statutorily required safety and soundness

examinations. The number and total assets of FDIC-supervised

institutions identified as “problem” institutions (defined as having 

a composite CAMELS1 rating of “4” or “5”) declined during 2005.

As of December 31, 2005, 29 institutions with total assets of 

$2.9 billion were identified as problem institutions, compared to 44

institutions with total assets of $5.4 billion on December 31, 2004.

These changes represent a decrease of 34.1 percent and 46.3 percent,

respectively, in the number and assets of problem institutions.

During 2005, 36 institutions were removed from problem institution

status due to composite rating upgrades, mergers, consolidations

or sales and 19 institutions were newly identified as problem 

institutions. Additionally, two problem institutions converted to

State non-member charters and are now under FDIC supervision.

The FDIC is required to conduct follow-up examinations of all 

designated problem institutions within 12 months of the last 

examination. As of December 31, 2005, 100 percent of all 

follow-up examinations for problem institutions had been 

performed on schedule.

Compliance and Community Reinvestment Act (CRA)

Examinations 

The FDIC conducted 815 comprehensive compliance-CRA 

examinations, 1,198 compliance-only examinations,2 and seven

CRA-only examinations in 2005, compared to 1,459 joint complianceCRA examinations, 673 compliance-only examinations, and four

1The CAMELS composite rating represents the adequacy of Capital, the quality of Assets, the capability 

of Management, the quality and level of Earnings, the adequacy of Liquidity, and the Sensitivity to 

market risk, and ranges from “1” (strongest) to “5” (weakest).

2Compliance-only examinations are conducted for most institutions at or near the mid-point between

joint compliance-CRA examinations under the Community Reinvestment Act of 1977, as amended 

by the Gramm-Leach-Bliley Act of 1999. CRA examinations of financial institutions with aggregate 

assets of $250 million or less are subject to a CRA examination no more than once every five years 

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

a CRA rating of “Satisfactory.”
15

CRA-only examinations in 2004. The FDIC conducted 100 percent

of all joint and comprehensive examinations within established time

frames. As of December 31, 2005, three institutions were assigned

a “4” rating for compliance, and no institutions were rated “5.”The

first “4” -rated institution is currently under an outstanding Cease

and Desist Order and an on-site examination was underway at 

year-end. Management of the second institution executed a

Memorandum of Understanding on October 5, 2005. The third 

institution was examined in 2005 and the Regional Office is 

currently finalizing a Cease and Desist Order to address the 

FDIC examination findings.

Relationship Manager Program 

On October 1, 2005, the Corporation implemented the Relationship

Manager Program for all FDIC-supervised institutions. The program,

which was piloted in 390 institutions during 2004, is designed to

strengthen communication between bankers and the FDIC, as 

well as improve the coordination, continuity and effectiveness 

of regulatory supervision. Each FDIC-supervised institution was

assigned a relationship manager, who serves as a local point of 

contact over an extended period and will often participate in or 

lead examinations for his or her assigned institution. The program

will allow for flexibility in conducting examination activities at various

times during the 12- or 18-month examination cycle based on risk

or staffing considerations. 

Savings Associations 1 0 0

National Banks 0 0 5

State Member Banks 1 3 3

Subtotal - Safety and Soundness Examinations 2,399 2,515 2,421

CRA/Compliance Examinations:

Compliance- Community Reinvestment Act 815 1,459 1,610

Compliance-only 1,198 673 307

CRA-only 7 4 2

Subtotal CRA/Compliance Examinations 2,020 2,136 1,919

Specialty Examinations:

Trust Departments 450 534 501

Data Processing Facilities 2,708 2,570 2,304

Subtotal-Specialty Examinations 3,158 3,104 2,805

Total 7,577 7,755 7,145
16

August 15, 2005. The new procedures focus on the financial 

institution’s information security program and risk-management

practices for securing information assets. The program integrates

with the Relationship Manager Program by embedding the IT 

examination within the Risk Management Report of Examination 

for all FDIC-supervised financial institutions, regardless of size,

technical complexity or prior examination rating. IT-RMP eliminates

reporting of IT component ratings and reports only a single technology

rating.

Homeland Security 

The financial sector is a critical part of the infrastructure in the

United States, and the FDIC has taken a leadership role in assisting

the financial sector to prepare for emergencies. As a member of

the Financial and Banking Information Infrastructure Committee

(FBIIC), the FDIC sponsored a series of outreach meetings titled

“Protecting the Financial Sector: A Public and Private Partnership.”

From 2003 to early 2005, the homeland security meetings were

held in 29 cities across the United States with the last meeting 

held in New York City, NY. These meetings provided members 

of the financial sector with the opportunity to communicate 

with senior government officials, law enforcement, emergency

management personnel and private sector leaders about emergency

preparedness. A second round of homeland security meetings 

started in late 2005 with four meetings held during this timeframe.

Homeland Security meetings are planned for 21 cities in 2006.

The FDIC served as the FBIIC’s liaison with the Department of

Homeland Security (DHS) during 2005 and assisted DHS with 

items relating to the financial sector. 

Bank Secrecy Act

The FDIC is committed to assisting in efforts designed to thwart

the inappropriate use of the banking system through activities 

conducted by terrorists and other criminals. In 2005, the Division 

of Supervision and Consumer Protection established a new AntiMoney Laundering (AML) and Financial Crimes Branch to focus

important resources and attention on our increasing responsibilities 

in these areas. The new branch brings together specialists to address

issues related to Bank Secrecy Act (BSA) compliance, money 

laundering, financial crimes, terrorist financing, and cyber-fraud. 
17

the FDIC issued a Policy Statement Regarding Minority Depository

Institutions. The policy, which can be found at www.fdic.gov/

regulations/resources/index.html, implements an outreach program

designed to preserve and encourage minority ownership of financial

institutions. 

In 2005, the FDIC provided technical assistance, training and 

educational programs and held interagency forums to address the

unique challenges faced by minority depository institutions. Training

and educational programs for minority depository institutions included

the FDIC’s Director’s College Program and the FDIC’s Money Smart

Program. The FDIC co-hosted Regional Forums with the America’s

Community Bankers Association and the National Bankers

Association in 2005. FDIC also participated in and/or co-sponsored

conferences with America’s Community Bankers, National Bankers

Association, National Association of Chinese American Bankers,

Western Independent Bankers, and Puerto Rico Bankers

Association. 

FDIC also supported the preservation of minority depository institutions in its response to Hurricane Katrina. The FDIC Task Force on

Minority Community Banking and Non-Branch Banking met with

representatives from the Utah industrial loan company industry 

to facilitate their assistance to minority depository institutions in 

the Gulf Coast region affected by Hurricane Katrina. The result has

been that as of year-end 2005, the Utah industrial loans companies

have pledged more than $18 million in deposits and over $120,000

in direct grants to this effort. Efforts similar to these made by this

FDIC task force will continue in 2006. 

Large-Bank Program 

In recognition of the increasing concentration of risk exposure in

large insured institutions, as well as new challenges posed by the

implementation of the Basel II Capital Accord, the FDIC enhanced

its large-bank supervision and risk assessment efforts in 2005 by

creating two branches –the Large Bank Supervision Branch and 

the International and Large Bank Policy Branch. 

The Large Bank Supervision Branch is responsible for supporting

supervisory activities in large banks and establishing minimum 

standards and supervisory strategies necessary to ensure a 

consistent approach to large-bank supervision on a national 

basis. In 2005, Branch staff was actively involved in domestic 
18

The International and Large Bank Policy Branch is responsible 

for supporting supervisory activities in the areas of risk model

assessment, economic capital processes, examination work 

related to market risk under Part 325 Appendix C of the FDIC 

rules and regulations and other processes that are dependent 

on quantitative methods. The purpose of Part 325 Appendix C 

is to ensure that banks with significant exposure to market risk

maintain adequate capital to support that exposure. In addition, 

the International and Large Bank Policy Branch is responsible 

for policy development regarding large-bank supervision and 

international matters. 

Identity Theft and Consumer Privacy

In 2005, the FDIC continued to take a leading role in helping banks

combat identity theft. The FDIC solicited public comment on its

study Putting an End to Account Hijacking Identity Theft published

in December 2004 and in June 2005, published a study supplement.

The study and the supplement took an in-depth look at identity theft,

focusing on account hijacking (the unauthorized use of deposit

accounts). 

The FDIC is one of several federal agencies charged with implementing

the provisions of the Fair and Accurate Credit Transactions Act of

2003 (FACT Act), which substantially amended the Fair Credit

Reporting Act, particularly in the areas of consumer access to and

quality of credit information, privacy, and identity theft. Consistent

with the privacy requirements of the FACT Act, the FDIC worked

with other federal agencies to finalize rules in 2005 that permit

creditors to obtain, use and share medical information only to the

degree necessary to facilitate legitimate operational needs. The

FDIC is training its examiners on the concepts underlying the entire

FACT Act, and is developing examination procedures to evaluate

industry compliance. 

Consistent with the identity theft provision of the FACT Act, the

FDIC worked with other federal agencies in 2004 to propose rules

that would require banks to implement a written identity theft 

protection program which includes procedures to evaluate red flags

that might indicate identity theft. The FDIC, with the other agencies,

also finalized rules requiring institutions to properly dispose of 

consumer information derived from credit reports in order to 

prevent identity theft and other fraud. The rules on disposal 

of consumer information became effective on July 1, 2005. 
19

2005, the FDIC received 8,851 complaints, of which 3,307 were

against state non-member institutions. Approximately 36 percent 

of the state non-member bank consumer complaints concerned

credit card accounts, with the most frequent complaints involving

billing disputes and account errors, loan denials, terms and conditions,

collection practices, reporting of erroneous information, credit card

fees and service charges, interest rates, and disclosures. The FDIC

responded to over 97 percent of written complaints on a timely

basis. 

The FDIC also responded to 4,042 written and 9,395 telephone

inquiries from consumers and members of the banking community

about consumer protection issues. In addition, the FDIC responded

to over 64,000 written and telephone inquiries from bankers and

consumers about the FDIC’s deposit insurance program and

insurance coverage issues.

Deposit Insurance Education 

An important part of the FDIC’s role in insuring deposits and 

protecting the rights of depositors is its responsibility to ensure 

that bankers and consumers have access to accurate information

about FDIC’s deposit insurance rules. To that end, the FDIC has 

an expansive deposit insurance education program consisting 

of seminars for bankers, electronic tools for estimating deposit

insurance coverage, and written and electronic information targeting

both bankers and consumers. 

During 2005, the FDIC completed development of a major update

of its popular Electronic Deposit Insurance Estimator (EDIE) for consumers, an Internet application located on FDIC’s Web site that

estimates insurance coverage for users’ deposit accounts at

insured institutions. The new Consumer EDIE offers two different

approaches for calculating coverage, one for novice users and one

for frequent users. The new Consumer EDIE application is available

for public use starting January 2006. 

The FDIC conducted a nationwide series of telephone/Internet 

seminars for bankers and a nationwide survey of insured institutions

to gather information about current awareness of, and opinions

about, the FDIC’s existing educational resources on the deposit

insurance rules. The FDIC also initiated an effort to encourage 

more bank trade organizations to sponsor FDIC deposit insurance

seminars for their members. 
The FDIC conducted 27 seminars for financial institution employees

and consumer organizations on the rules for deposit insurance 

coverage. These seminars, which were conducted in a variety of

formats, including Internet, teleconference and classroom, provided 

a comprehensive review of how FDIC insurance works, including

the FDIC’s rules for coverage of different types of deposit accounts. 

Receivership Management

The FDIC has the unique mission of protecting depositors of insured

banks and savings associations. No insured depositor has ever 

experienced a loss in a FDIC-insured institution due to a failure. 

Once an institution is closed by its chartering authority – the state

for state-chartered institutions, the Office of the Comptroller of

the Currency (OCC) for national banks and the Office of Thrift

Supervision (OTS) for federal savings associations – the FDIC is

responsible for resolving that failed bank or savings association. 

The FDIC staff gathers data about the troubled institution, estimates

the potential loss to the insurance fund(s) from various resolution

alternatives, solicits and evaluates bids from potential acquirers, 

and recommends the least-costly resolution method to the FDIC’s

Board of Directors.

Resolving Financial Institutions Failures 

During 2005, there were no institution failures. This is the first 

calendar year in the history of the FDIC during which no insured

institutions failed. 

Protecting Insured Depositors 

Although the focus of the FDIC in recent years has shifted from

resolving large numbers of failed institutions to addressing existing

and emerging risks in insured depository institutions, the FDIC 

continues to protect deposits in those institutions that fail. The

FDIC’s ability to attract healthy institutions to assume deposits and

purchase assets of failed banks and savings associations minimizes

the disruption to customers and allows some assets to be returned

to the private sector immediately. Assets remaining after resolution

are liquidated by the FDIC in an orderly manner and the proceeds

are used to pay creditors, including depositors whose accounts

exceeded the insured $100,000 limit. During 2005, the FDIC paid

dividends of 77.9 percent of the deposit amount exceeding the

insured limit. These dividends paid in 2005 are up 4.9 percent 

from 2004.

20
21

Professional Liability Recoveries

The FDIC staff works to identify potential claims against directors and

officers, accountants, appraisers, attorneys and other professionals

who may have contributed to the failure of an insured financial 

institution. Once a claim is deemed viable and cost effective to 

pursue, FDIC initiates legal action against the appropriate parties.

During the year, the FDIC recovered approximately $65 million 

from these professional liability suits. In addition, as part of the 

sentencing process for those convicted of criminal wrongdoing

against failed institutions, the court may order a defendant to pay

restitution to the receivership. The FDIC, working in conjunction

with the U.S. Department of Justice, collected more than $6 million

in criminal restitution during the year. The FDIC’s caseload at the end

of 2005 included investigations, lawsuits and ongoing settlement

collections involving 21 claims and 106 other active collections, down

from 233 at the beginning of 2005. At the end of 2005, there were

995 pending restitution orders, down from 1,181. This includes 

RTC orders that the FDIC inherited on January 1, 1996.

Effective Management of Strategic Resources

To carry out its mission successfully, the FDIC must effectively manage

and utilize a number of critical strategic resources particularly its

human, financial, and information technology (IT) resources. Major

accomplishments in improving the Corporation’s operational efficiency

and effectiveness are described below. Although the FDIC is not

subject to the President’s Management Agenda, many of these

efforts are consistent with the spirit of that agenda. 

Assets of Resolved Savings Associations $ 0.00 $ 0.01 $ 0.00

Net Collections from Assets in Liquidation■$ 0.37 $ 0.38 $ 1.70

Total Assets in Liquidation■$ 0.44 $ 0.61 $ 0.81

Total Dividends Paid ■$ 0.44 $ 0.38 $ 1.06

Savings Over Cost of Liquidation▼$ 0 $11.6 million $28.2 million

No failures in 2005.

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

Resolution Trust Corporation. 

Least Cost Test Savings.

●

■

▼
22

construction of additional FDIC office and multipurpose buildings

adjacent to the existing facilities at Virginia Square. This project will

eliminate the need for the Corporation to lease commercial space 

in downtown Washington, DC, and will substantially reduce future

facility costs. Management processes have been implemented 

to ensure adherence to the project budget and schedule. Once

completed and occupied, the new building will provide estimated

cost savings of approximately $78 million (net present value) over

20 years, when compared to the projected costs associated with

the current headquarters leasing arrangements. Construction has

progressed on schedule and under budget. Occupancy began in

mid-January 2006 and should be completed prior to the end of 

the first quarter 2006, as targeted. 

Human Capital Management

The FDIC’s employees are its most important resource for accomplishing its mission. For that reason, it seeks to continue to be the

employer of choice within the financial regulatory community and 

to operate a human resources program that attracts, develops, 

evaluates, rewards and retains a high-quality results-oriented 

workforce. This has been a difficult challenge over the past 13 years

because the Corporation has been in a continuous downsizing

mode as it completed the residual workload from the banking and

thrift crises of the late 1980s and early 1990s.

Although the pace of downsizing has slowed in the past few years,

the Corporation continues to adjust both the size and composition

of its workforce to meet the changing course of the financial services

industry. In 2005, the FDIC implemented a number of strategies

identified in the human capital plan developed in 2004 to procure

the skill sets needed in this new environment.

Significant Information Technology Initiatives

On May 2, 2005, the FDIC implemented the New Financial

Environment (NFE) and its supporting systems. The implementation

was the culmination of years of effort by the FDIC to modernize 

its aging, highly-customized and complex financial systems environment. NFE is a corporate-wide effort focused on implementing an

enterprise-wide, integrated software solution to support the current

and future financial needs of the FDIC. The NFE also enhances 

the capability of other significant development efforts such as the

Corporate Human Resources Information System Time & Attendance

System, and the Legal Integrated Management System and also

makes available more robust cost information that provides a basis

of improved decision making.
23

the March 2005 assessment cycle. In 2005, over 150,000 transactions

were completed by financial institutions using FDICconnect.

Transformation of the Information Technology Program

In 2005, the FDIC completed critical steps toward transforming its

information technology program – an initiative begun in 2004. Using

a roadmap developed with Deloitte Touche over 18 months ago,

the FDIC implemented an outsourcing strategy, employee buyout

and divisional reorganization that will significantly improve the 

program’s overall efficiency and effectiveness.

Once completed, the FDIC anticipate benefits of the transformation

will include:

● The greater use of contracting partners for operation and 

implementation allowing in-house staff to focus on strategic 

business planning, design and consultation.

● Reduced costs through improving the efficiency and effectiveness

of IT products and services.

● A targeted long-term plan for personal and technical development

of all IT employees resulting from a new skills assessment to 

be conducted during 2006.

Privacy Program

In 2005, the charter of the Chief Information Officer’s Council was

expanded to include oversight of Privacy Act responsibilities, and the

corporate Privacy Program was enhanced under the guidance of the

newly appointed Chief Privacy Officer (CPO). The program’s objective

is to ensure that the FDIC is taking appropriate steps to protect 

personally identifiable information from unauthorized use, access, 

disclosure or sharing, and to protect associated information systems

from unauthorized access, modification, disruption or destruction. 

One of the first priorities is in the area of employee awareness. 

The program requires mandatory privacy training so that all FDIC

employees and contractors are aware of the requirements for 

safeguarding sensitive information and know where to obtain 

privacy-related reference material. Many initiatives were completed

in 2005 in support of the newly enhanced Corporate Privacy

Program, including mandatory computer-based privacy training 

and distribution of a Privacy Awareness Package.
2

us te obgatos ote oeedeaSags ad oa

Insurance Corporation (FSLIC) and the former Resolution Trust

Corporation (RTC). The following summarizes the condition of 

the FDIC’s insurance funds. (See the accompanying chart on 

the following page for more information on insured deposits.)

The BIF reported comprehensive income (net income plus current

period unrealized gains/losses on available-for-sale (AFS) securities)

of $680 million in 2005 compared to $1.004 billion in 2004. This

reduction of $324 million was primarily due to an increase in 

unrealized losses on AFS securities of $279 million, lower recoveries

of prior years’ provisions for insurance losses of $143 million, an

increase in operating expenses of $25 million, and a decrease in

assessment revenues of $43 million, offset by an increase of 

$161 million in interest revenue on U.S. Treasury obligations. As 

of December 31, 2005, the fund balance was $35.5 billion, up from

$34.8 billion at year-end 2004.

The SAIF reported comprehensive income of $409 million in 2005,

compared to $480 million in 2004. This reduction of $71 million was

primarily due to an increase in unrealized losses on AFS securities of

$93 million and lower recoveries of prior years’ provisions for insurance

losses of $50 million, offset by a $73 million increase in interest

revenue on U.S. Treasury obligations. As of December 31, 2005, the

fund balance was $13.1 billion, up from $12.7 billion at year-end 2004.

For both BIF and SAIF, higher interest revenue on U.S. Treasury

obligations stemmed from higher overnight and short-term Treasury

yields as well as higher inflation compensation on Treasury Inflation

Protected Securities. However, the higher interest revenue was

more than offset by an increase in unrealized losses that resulted

from a rise in Treasury market yields on short- to intermediatematurity AFS securities during 2005.

Operating Expenses

Corporate Operating Budget expenses totaled $990 million in 2005,

including $979 million in ongoing operations and $11 million for

receivership funding. This represented approximately 95 percent of

the approved budget for ongoing operations and 15 percent of the

approved budget for receivership funding. 

In December 2005, the Board of Directors approved a 2006

Corporate Operating Budget of approximately $1.05 billion, including

$975 million for ongoing operations. The level of approved Corporate

Operating Budget for 2006 is more than 5 percent lower than the

Corporate Operating Budget for 2005 due to savings achieved through
25

2,500

2,000

1,500

1,000

500

0

● All amounts are yearend except 2005 is as of 9/30/05. 

Source: Commercial Bank Call Reports and Thrift Financial Reports

continued staffing reductions and the realization of other efficiencies.

The Corporate Operating Budget includes funding for a number 

of major new initiatives, including increased funding for consumer

protection activities; continued implementation of the Corporate

Employee Program; several new learning initiatives consistent 

with the Corporation’s commitment to an environment of continuous

employee growth and development; and several projects to explore

increased automation of the bank examination process.

Investment Spending

The FDIC has a disciplined process for reviewing proposed new

investment projects and managing the implementation of approved

projects. Most of the projects in the current investment portfolio are

major IT system initiatives. Proposed IT projects are carefully reviewed

to ensure that they are consistent with the Corporation’s enterprise

architecture and include an appropriate return on investment for the

insurance funds. The process also enables the FDIC to be aware of

risks to the major capital investment projects and facilitates appropriate,

timely intervention to address these risks throughout the development

process. An investment portfolio performance review of the major

capital investments is provided to the FDIC’s Board of Directors quarterly.

During 2005, the Corporation completed and implemented three

projects in its investment portfolio. Spending for investment projects

in 2005 totaled approximately $62 million, but is expected to drop

significantly in 2006. The Board of Directors did not approve any

new investment projects in 2005.
Dollars in Thousands

2005 2004

Assets

Cash and cash equivalents $ 2,411,828 $ 1,821,776

Investment in U.S. Treasury obligations, net: 

Held-to-maturity securities 24,678,611 22,637,330

Available-for-sale securities 7,620,733 9,470,605

Interest receivable on investments and other assets, net 546,202 601,498

Receivables from bank resolutions, net 299,317 375,303

Property and equipment, net 378,064 357,106

Total Assets $ 35,934,755 $ 35,263,618

Liabilities

Accounts payable and other liabilities $ 265,687 $ 268,451

Contingent liabilities for: 

Anticipated failure of insured institutions 1,591 8,261

Litigation losses and other 200,435 200,301

Total Liabilities 467,713 477,013

Commitments and off-balance-sheet exposure 

Fund Balance

Accumulated net income 35,168,698 34,096,676

Unrealized gain on available-for-sale securities, net 298,344 689,929

Total Fund Balance 35,467,042 34,786,605

Total Liabilities and Fund Balance $ 35,934,755 $ 35,263,618
27

Dollars in Thousands 

2005 2004

Revenue

Interest on U.S. Treasury obligations $ 1,713,316 $ 1,552,576 

Assessments 52,570 95,268

Other revenue 17,587 27,547

Total Revenue 1,783,473 1,675,391

Expenses and Losses

Operating expenses 846,183 821,341

Provision for insurance losses (138,181) (281,390)

Insurance and other expenses 3,449 18,662

Total Expenses and Losses 711,451 558,613

Net Income 1,072,022 1,116,778

Unrealized loss on available-for-sale securities, net (391,585) (112,368)

Comprehensive Income 680,437 1,004,410

Fund Balance - Beginning 34,786,605 33,782,195

Fund Balance - Ending $ 35,467,042 $ 34,786,605
28

Dollars in Thousands 

2005 2004

Operating Activities

Net Income: $ 1,072,022 $ 1,116,778

Adjustments to reconcile net income to net cash 

provided by operating activities:

Amortization of U. S. Treasury obligations 613,971 737,439

Treasury inflation-protected securities (TIPS) 

inflation adjustment (257,829) (181,650)

Depreciation on property and equipment 55,989 54,424

Provision for insurance losses (138,181) (281,390)

Terminations/adjustments of work-in-process accounts 178 817

Change In Operating Assets and Liabilities:

(Increase) in interest receivable and other assets (3,398) (24,411)

Decrease in receivables from bank resolutions 211,955 218,693

Increase in accounts payable and other liabilities 21,860 15,590

(Decrease) in contingent liabilities for litigation losses 

and other (182) (1,047)

Net Cash Provided by Operating Activities 1,576,385 1,655,243

Investing Activities

Provided by:

Maturity of U.S. Treasury obligations, held-to-maturity 6,290,000 3,365,000

Maturity of U.S. Treasury obligations, available-for-sale 1,560,000 5,810,000

Used by:

Purchase of property and equipment (47,197) (104,502)

Purchase of U.S.Treasury obligations, held-to-maturity (8,789,136) (10,026,597)

Purchase of U.S.Treasury obligations, available-for-sale 0 (1,421,649)

Net Cash Used by Investing Activities (986,333) (2,377,748)

Net Increase/(Decrease) in Cash and Cash Equivalents 590,052 (722,505)

Cash and Cash Equivalents - Beginning 1,821,776 2,544,281

Cash and Cash Equivalents - Ending $ 2,411,828 $ 1,821,776
29

Dollars in Thousands 

2005 2004

Assets

Cash and cash equivalents $ 797,616 $ 644,346

Cash and other assets: Restricted for SAIF-member 

exit fees (Includes cash and cash equivalents of

$20.9 million and $56.5 million at December 31, 2005 

and 2004, respectively) 341,656 328,394

Investment in U.S. Treasury obligations, net: 

Held-to-maturity securities 9,574,627 8,835,964

Available-for-sale securities 2,366,489 2,720,315

Interest receivable on investments and other assets, net 191,364 200,204

Receivables from thrift resolutions, net 234,157 346,923

Total Assets $ 13,505,909 $ 13,076,146

Liabilities

Accounts payable and other liabilities $ 30,854 $ 25,568

Contingent liabilities for: 

Anticipated failure of insured institutions 3,775 1,957

Litigation losses 65 39

SAIF-member exit fees and investment proceeds 

held in escrow 341,656 328,394

Total Liabilities 376,350 355,958

Commitments and off-balance-sheet exposure 

Fund Balance

Accumulated net income 13,021,364 12,482,227

Unrealized gain on available-for-sale securities, net 108,195 237,961

Total Fund Balance 13,129,559 12,720,188

Total Liabilities and Fund Balance $ 13,505,909 $ 13,076,146
30

Dollars in Thousands 

2005 2004

Revenue

Interest on U.S. Treasury obligations $ 628,189 $ 555,592 

Assessments 8,315 8,891

Other revenue 485 294

Total Revenue 636,989 564,777

Expenses and Losses

Operating expenses 119,468 119,998

Provision for insurance losses (21,988) (72,385)

Insurance and other expenses 372 713

Total Expenses and Losses 97,852 48,326

Net Income 539,137 516,451

Unrealized loss on available-for-sale securities, net (129,766) (36,328)

Comprehensive Income 409,371 480,123

Fund Balance - Beginning 12,720,188 12,240,065

Fund Balance - Ending $ 13,129,559 $ 12,720,188
31

Dollars in Thousands 

2005 2004

Operating Activities

Net Income: $ 539,137 $ 516,451

Adjustments to reconcile net income to net cash 

provided by operating activities:

Amortization of U. S. Treasury obligations 220,147 262,317

Treasury inflation-protected securities (TIPS) 

inflation adjustment (87,194) (61,431)

Provision for losses (21,988) (72,385)

Amortization of prepaid FFIEC assets 17 0

Change In Operating Assets and Liabilities:

Increase/(Decrease) in unamortized premium and 

discount of U. S. Treasury Obligations (restricted) (6,565) 2,443

Decrease/(Increase) in entrance and exit fees receivable, 

including interest receivable on investments and other assets 8,988 (16,065)

Decrease/(Increase) in receivables from thrift resolutions 136,218 (2,635)

Increase in accounts payable and other liabilities 5,285 5,028

Increase in exit fees and investment proceeds held in escrow 28,556 9,107

Net Cash Provided by Operating Activities 822,601 642,830

Investing Activities

Provided by:

Maturity of U.S. Treasury obligations, held-to-maturity 1,930,000 1,690,000

Maturity of U.S. Treasury obligations, available-for-sale 270,000 1,360,000

Used by:

Purchase of U.S. Treasury obligations, held-to-maturity (2,904,848) (4,051,084)

Net Cash Used by Investing Activities (704,848) (1,001,084)

Net Increase/(Decrease) in Cash and Cash Equivalents 117,753 (358,254)

Cash and Cash Equivalents - Beginning 700,798 1,059,052

Unrestricted Cash and Cash Equivalents - Ending 797,616 644,346

Restricted Cash and Cash Equivalents - Ending 20,935 56,452

Cash and Cash Equivalents - Ending $ 818,551 $ 700,798
32

Dollars in Thousands 

2005 2004

Assets

Cash and cash equivalents $ 3,602,703 $ 3,501,384

Receivables from thrift resolutions and other assets, net 38,746 82,275

Total Assets $ 3,641,449 $ 3,583,659

Liabilities

Accounts payable and other liabilities $ 7,799 $ 5,603

Contingent liabilities for litigation losses and other 257,503 410

Total Liabilities 265,302 6,013

Resolution Equity 

Contributed capital 127,007,441 126,382,877

Accumulated deficit (123,631,294) (122,805,158)

Unrealized loss on available-for-sale securities, net 0 (73)

Accumulated deficit, net (123,631,294) (122,805,231)

Total Resolution Equity 3,376,147 3,577,646

Total Liabilities and Resolution Equity $ 3,641,449 $ 3,583,659
33

Dollars in Thousands 

2005 2004

Revenue

Interest on U.S. Treasury obligations $ 98,260 $ 40,076

Realized gain on investment in securitization-related 

assets acquired from receiverships 0 66,708

Other revenue 24,176 21,114

Total Revenue 122,436 127,898

Expenses and Losses

Operating expenses 24,626 22,928

Provision for losses 241,065 (13,206)

Expenses for goodwill settlements and litigation 718,494 31,632

Recovery of tax benefits (45,946) (82,937)

Other expenses 10,333 11,703

Total Expenses and Losses 948,572 (29,880)

Net (Loss)/Income (826,136) 157,778

Unrealized gain/(loss) on available-for-sale securities, net 73 (41,572)

Comprehensive (Loss)/Income (826,063) 116,206

Accumulated Deficit - Beginning (122,805,231) (122,921,437)

Accumulated Deficit - Ending $ (123,631,294) $ (122,805,231)
Dollars in Thousands 

2005 2004

Operating Activities

Net (Loss)/Income: $ (826,136) $ 157,778

Adjustments to reconcile net (loss)/income 

to net cash (used by) operating activities:

Provision for losses 241,065 (13,206)

Change in Assets and Liabilities:

Decrease/(Increase) in receivables from 

thrift resolutions and other assets 59,459 (28,943)

Increase/(Decrease) in accounts payable 

and other liabilities 2,196 (13,778)

Net Cash (Used by) Provided by Operating Activities (523,416) 101,851

Investing Activities 

Investment in securitization-related assets 

acquired from receiverships 171 115,975

Net Cash Provided by Investing Activities 171 115,975

Financing Activities 

Provided by:

U.S. Treasury payments for goodwill settlements 624,564 5,026

Net Cash Provided by Financing Activities 624,564 5,026

Net Increase in Cash and Cash Equivalents 101,319 222,852

Cash and Cash Equivalents - Beginning 3,501,384 3,278,532

Cash and Cash Equivalents - Ending $ 3,602,703 $ 3,501,384

34
We audited the Federal Deposit Insurance Corporation’s (FDIC) balance sheets as of 

December 31, 2005 and 2004, for the three funds administered by FDIC (the Bank Insurance 

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

the related statements of income and fund balance (accumulated deficit), and the statements 

of cash flows for the years then ended, and in our report dated January 31, 2006, we expressed 

an unqualified opinion on those statements. 

In that report, we stated that we found the following:

● the financial statements of each fund are presented fairly, in all material respects,

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

● although certain internal controls should be improved, FDIC had effective internal control 

over financial reporting and compliance with laws and regulations for each fund; and

● no reportable noncompliance with the laws and regulations we tested.

In addition, we referred the reader to note 1 of the BIF’s and SAIF’s financial statements that 

discuss the enactment, on February 8, 2006, of the Federal Deposit Insurance Reform Act 

of 2005, which calls for the merger of BIF and SAIF into a single Deposit Insurance Fund. 

In our opinion, the information set forth in the accompanying condensed financial statements 

is presented fairly, in all material respects, in relation to the financial statements from which 

it has been derived. 

As discussed in our January 31, 2006 report, we identified a reportable condition in FDIC’s 

information system controls which, while not considered a material weakness, does represent 

a significant deficiency in the design or operation of internal control that could adversely affect 

FDIC’s ability to meet its internal control objectives. Specifically, we identified information 

system control weaknesses that increased the risk of unauthorized modification and disclosure 

of critical FDIC financial and sensitive personnel information, disruption of critical operations,

and loss of assets. These weaknesses affected FDIC’s ability to ensure that users only had the 

access needed to perform their assigned duties and that its systems were sufficiently protected 

from unauthorized users. 

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

standards. 

David M. Walker

Comptroller General of the United States

January 31, 2006

35
36

U.S. Government Accountability Office

441 G Street, NW

Washington, DC 20548

Re: FDIC Management Response on the 

GAO 2005 Financial Statements Audit Report

Dear Mr. Walker:

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

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

Funds’ 2005 and 2004 Financial Statements, GAO-06-146. The report presents GAO’s 

opinions on the calendar years 2005 and 2004 financial statements of the Bank Insurance

Fund (BIF), the Savings Association Insurance Fund (SAIF), and the Federal Savings and

Loan Insurance Corporation Resolution Fund (FRF). The report also presents GAO’s 

opinion on the effectiveness of FDIC’s internal controls as of December 31, 2005, and

GAO’s evaluation of FDIC’s compliance with applicable laws and regulations.

We are pleased to accept GAO’s unqualified opinions on the BIF, SAIF, and FRF financial

statements and to note that there were no material weaknesses identified during the 2005

audits. The GAO reported that the funds’ financial statements were presented fairly, in all

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

had effective internal control over financial reporting and compliance with laws and regulations;

and there were no instances of noncompliance with laws and regulations that were tested.

Regarding the reinstated reportable condition on information systems controls, we acknowledge but do not share the GAO’s assessment regarding the severity of the risk impact or the

magnitude of the collective vulnerability posed by the potential control issues identified by

the GAO’s audit team. Confidence in the sufficiency of our information systems environment

and the related information system controls is grounded in what FDIC believes is a deliberate,

comprehensive program designed, in conjunction with the deployment of our new financial

system, to integrate not only system controls, but procedural, managerial, and audit controls

into a balanced and cost-effective control framework. Nevertheless, the FDIC will work 

diligently with our GAO audit partners, throughout the 2006 audit cycle, to reconcile our

respective views on this matter and to augment our program in those instances where it 

is determined that changes are appropriate. 

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

Sincerely,

Steven O. App

Deputy to the Chairman and Chief Financial Officer
coverage; the Institution Directory  financial profiles of FDICinsured institutions;

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Smart, a training program to help individuals outside the financial mainstream

enhance their money management skills and create positive banking relationships. Readers also can access a variety of consumer pamphlets, FDIC press

releases, speeches and other updates on the agency’s activities, as well as

corporate databases and customized reports of FDIC and banking industry

information. 

FDIC Call Center Phone: 877-275-3342 (877-ASK FDIC)

703-562-2222

Hearing 

Impaired: 800-925-4618

The FDIC Call Center in Washington, DC, is the primary telephone point 

of contact for general questions from the banking community, the public and

FDIC employees. The Call Center directly, or in concert with other FDIC subject

matter experts, responds to questions about deposit insurance and other 

consumer issues and concerns, as well as questions about FDIC programs 

and activities. The Call Center also makes referrals to other federal and state

agencies as needed. Hours of operation are 8:00am to 8:00pm Eastern Time.

Information is also available in Spanish. Recorded information about deposit

insurance and other topics is available 24 hours a day at the same telephone

number.

Public Information Center Phone: 877-275-3342 (877-ASK FDIC)

3503 Fairfax Drive 703-562-2200

Room E-1002 Fax: 703-562-2296

Arlington, VA 22226 E-mail: publicinfo@fdic.gov

FDIC publications, press releases, speeches and Congressional testimony,

directives to financial institutions, policy manuals and other documents are

available on request or by subscription through the Public Information Center.

These documents include the Quarterly Banking Profile, FDIC Consumer

News and a variety of deposit insurance and consumer pamphlets.

Office of the Ombudsman Phone: 877-275-3342 (877-ASK FDIC)

3503 Fairfax Drive /Room E-2022 Fax: 703-562-6057

Arlington, VA 22226 E-mail: ombudsman@fdic.gov

The Office of the Ombudsman responds to inquiries about the FDIC in a fair,

impartial and timely manner. It researches questions and complaints from

bankers and the public. The office also recommends ways to improve FDIC

operations, regulations and customer service.

37
38

Special Advi

to the Chairm

George E. F

Division 

of Finance

Frederic

Director

Office of E

Risk Man

James H

Director

Deputy to 

and Chief 

Steven O

Off

Pu

D.J

Dir
39

John M. Reich

John C. Dugan

Office of the Chairman

Martin J. Gruenberg

Acting Chairman

isor 

man

French

Deputy to the Chairman 

and Chief Operating Officer

John F. Bovenzi

Division of Insurance 

and Research

Arthur J. Murton

Director

Division of Resolutions 

and Receiverships

Mitchell L. Glassman

Director

Division of 

Administration

Arleas Upton Kea

Director

Legal 

Division

William F. Kroener, III

General Counsel

Division of Supervision 

and Consumer Protection

Christopher J. Spoth

Acting Director

Division of Information 

Technology

Michael E. Bartell

Director

Office of Diversity and 

Economic Opportunity

D. Michael Collins

Director

Office of the 

Ombudsman

Cottrell L. Webster

Ombudsman

e

k S. Selby

Enterprise 

agement

H. Angel, Jr.

General

Counsel

William F. Kroener, III

the Chairman 

Financial Officer

O. App 

Office of 

Legislative Affairs

Alice C. Goodman

Director

fice of 

blic Affairs

J.Nordquist

rector/Deputy Chief of Staff

Vice Chairman

Martin J. Gruenberg

Corporate 

University

David C. Cooke

Chief, Learning Officer

Office of Inspector 

General

Patricia M. Black

Acting Inspector General

Chief Information Officer

Chief Privacy Officer

Michael E. Bartell

Deputy to the

Acting Chairman

Sandra L. Thompson
40

Design: FDIC/DOA/CSB/Design and Printing Unit

500 West Monroe Street Illinois Ohio

Suite 3500 Indiana Wisconsin

Chicago, Illinois 60661 Kentucky

(312) 382-7500 Michigan

1910 Pacific Avenue Colorado

Suite 1900 New Mexico

Dallas, Texas 75201 Oklahoma

(214 ) 754-0098 Texas

Memphis Area Office

5100 Poplar Avenue Arkansas

Suite 1900 Louisiana 

Memphis, Tennessee 38137 Mississippi

(901) 685-1603 Tennessee

2345 Grand Boulevard Iowa Nebraska

Suite 1200 Kansas North Dakota

Kansas City, Missouri 64108 Minnesota South Dakota

(816) 234-8000 Missouri

20 Exchange Place Delaware New York

4th Floor District of Columbia Pennsylvania

New York, New York 10005 Maryland Puerto Rico

(917) 320-2500 New Jersey Virgin Islands

Boston Area Office

15 Braintree Hill Office Park Connecticut Rhode Island

Suite 100 Maine Vermont

Braintree, Massachusetts 02184 Massachusetts

(781) 794-5500 New Hampshire

25 Ecker Street Alaska Hawaii Oregon

Suite 2300 Arizona Idaho Utah

San Francisco, California 94105 California Montana Washington

(415) 546-0160 Guam Nevada Wyoming

Chicago

Regional

Office

Dallas

Regional

Office

Kansas City

Regional

Office

New York

Regional

Office

San Francisco

Regional

Office
Current economic and bank analysis

Past studies on the banking industry

Bank examinations

Consumer affairs

www.fdic.gov