Values

The FDIC and its employees have a long 

and continuing tradition of distinguished 

public service. Six core values guide FDIC 

employees as they strive to fulfill the 

Corporation’s mission and vision:

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.

Mission

The Federal Deposit Insurance Corporation 

(FDIC) is an independent agency created 

by the Congress that maintains the stability 

and public confidence in the nation’s financial 

system by insuring deposits, examining 

and supervising financial institutions, and 

managing receiverships.

Vision

The FDIC is a leader in developing and 

implementing sound public policies, 

identifying and addressing risks in the 

nation’s financial system, and effectively 

and efficiently carrying out its insurance, 

supervisory, and receivership management 

responsibilities.

	 Message from the Chairman	 4

	 Message from the Chief Financial Officer	 10

I. Management’s Discussion and Analysis 12

	 The Year in Review	 12

	 	 Insurance	 12

	 	 Supervision and Consumer Protection	 15

	 	 Receivership Management	 27

	 	 Effective Management of Strategic Resources	 30

II. Financial Highlights 32

	 Deposit Insurance Fund Performance	 32

	 A Continuing Record of Prudent Stewardship	 34

	 2008 Corporate Operating Budget 34

	 Investment Spending	 35

III. Financial Statements 36

	 Deposit Insurance Fund (DIF)	 36

	 FSLIC Resolution Fund (FRF)	 39

	 Government Accountability Office’s Condensed Audit Opinion	 42

	 Management’s Response	 43

IV. Other Information 44

	 FDIC Organization Chart/Officials	 44

	 Sources of Information	 45

	 Regional and Area Offices	 46


I am pleased to present the Federal Deposit Insurance Corporation’s (FDIC)

2007 Annual Report (also referred to as the Performance and Accountability 

Report). The year posed major challenges to financial institutions and to the

economy as a whole. Slumping housing markets and escalating problems,

particularly related to subprime mortgage lending, were among the chief

contributors to increased uncertainty in the financial markets and widespread

reductions in asset values. In spite of these challenges, the FDIC continued

to ensure public confidence and stability in the nation’s financial system.

FDIC-insured institutions entered 2007 with strong earnings and capital, and

consequently, were in a good position to absorb the initial stresses associated

with last summer’s market events.

The problems that have emerged in the subprime mortgage market underscore

my longstanding view that consumer protection and safe and sound lending go

hand in hand. Most insured institutions have a good performance record in

both areas. However, failure by some lenders to uphold adequate standards

in the increasingly complex mortgage industry has caused serious problems

for consumers, lenders, investors, and the economy. Many of the more

troubling lending practices were found in institutions that are not subject to

federal supervision, rather than in insured banks and thrifts. Nationally, the

home foreclosure rate has nearly doubled in the past two years. An estimated

1.7 million owner-occupied, subprime hybrid adjustable rate mortgages (ARMs)

will reset in 2008 and 2009, and the combination of declining home prices and

scarce refinancing options could result in hundreds of thousands of additional

foreclosures. The FDIC is committed to working with market participants to

develop solutions that would help prevent unnecessary foreclosures and keep

homeowners in their homes.

Throughout 2007, I urged servicers and lenders to voluntarily restructure

some of their performing loans. Specifically, I endorsed a streamlined process

to keep homeowners with resetting subprime mortgages at their starter rate

for five or more years if they were current on their payments, but could not

make the higher payments after the loan reset. Using a streamlined process

to keep subprime borrowers paying affordable mortgages frees up resources

for lenders and servicers to respond to problems in other categories of loans.

On December 6, 2007, Treasury Secretary Paulson called for accelerated and

systematic loan modifications – a plan endorsed by President Bush along with

the other federal banking regulators, and agreed to by many representatives

of the mortgage lending industry. I view this as a very positive initial step

towards avoiding hundreds of thousands of foreclosures and the ensuing

economic consequences.

Three FDIC-insured banks failed in 2007. All three failures posed unique

challenges for the FDIC – one, in particular, because it was an Internet bank

with no physical branches. It was also the FDIC’s largest bank closing

in 14 years. While the industry had experienced no failures for two-and-ahalf-years, the FDIC remained ready and able to respond and incorporated

innovations to address new and challenging issues. In all three bank failures,

the FDIC effectively responded to the needs of the failed banks’ depositors –

as it has since 1934 – ensuring timely payments of insured deposits.

Message from the Chairman • Sheila C. Bair


In spite of its record of success, the FDIC has remained focused on improving

its ability to resolve financial institution failures. As financial institutions have

grown in both size and complexity, the challenges facing the FDIC, if one

or more should fail, have likewise grown. In response, the FDIC has strived

to balance the need for readiness with the goal of maximizing operational

efficiencies. These objectives are being met through a combination of

contingency planning, cross-training of staff, development of enhanced

systems for managing both the assets and liabilities of future failures, and

proposed improvements in financial institution recordkeeping. Through this

combination of strategies, the FDIC will continue its strong record of service,

reliability, efficiency, and providing outstanding value to its stakeholders.

The U.S. financial system benefits from a balance between large and complex

banks, regionally focused banks, and community banks. Community banks

are integral to their local economies and to the customers they serve –

individuals and businesses alike. Overall it is impressive that community

banks, while facing intensified competition, have been able to achieve both

respectable earnings and growth in recent years. Community banks possess

certain advantages as lenders to local households, small businesses, and

farmers. The willingness of private investors to risk their own money to

create new banks is a powerful market indicator of the viability of small

banks, especially in areas of high population density. Community banks

will continue to occupy an important position in the banking industry for

the foreseeable future.

We were busy in other areas as well, among them: implementing significant

policies to implement deposit insurance reform, working towards an agreement

on Basel II capital standards, modernizing the claims business process,

maintaining a strong supervisory program, and promoting economic inclusion.

Below are a few highlights of our activities in 2007, as well as some

challenges we will face in 2008.

Policy

On January 1, 2007, new risk-based deposit insurance assessment rates

became effective as part of implementation of the Federal Deposit Insurance

Reform Act of 2005. We distributed credits totaling $4.7 billion to those

institutions that contributed to the buildup of the insurance funds through

1996, and issued an Advance Notice of Proposed Rulemaking (ANPR)

seeking comments on alternative methods for allocating future dividends.

Our efforts on capital reform continued in 2007, with our active participation –

along with our fellow U.S. banking regulators – in shared implementation of

the Basel II Capital Accord. On November 5th, the FDIC Board of Directors

jointly approved, along with the other federal banking regulators, the final

rule to implement the advanced approaches of the Basel II Capital Accord

in the U.S. (Basel II AIRB final rule). The final rule is consistent in most

respects with the rules that are being implemented in other jurisdictions. At

the request of the FDIC, the agencies also included safeguards in the event

that the new rules do not work as intended. For instance, the final regulation

implements the agencies’ agreement not to allow any bank to exit its


transitional risk-based capital floors unless and until the agencies publish a

study finding that there are no material deficiencies in the framework after two

years experience in implementation or unless identified defects are remedied.

If any agency allows its banks to exit the floors in a way that departs from

this consensus approach, the rule requires that agency to publish a report

explaining its reasoning. The final rule will become effective on April 1, 2008.

The agencies have agreed to issue a proposed rule that would provide all

non-core banks with the option to adopt a standardized approach under the

Basel II Capital Accord. This would replace the earlier proposed rule to adopt

the “Basel IA” option. Basel IA was a new capital framework to be us

by banks that chose not to use the Basel II framework. As we enter the

new year, the FDIC will continue to provide leadership for this effort and

work toward the goal of publishing a Notice of Proposed Rulemaking (NPR)

to implement the standardized approaches of Basel II in the U.S. (Basel II

Standardized NPR). Both the Basel II AIRB final rule and the Basel II

Standardized NPR are part of our effort to enhance the risk sensitivity

of the existing risk-based capital framework, while maintaining safety

and soundness within the banking and thrift industries.

We also moved forward with our deposit insurance claims and modernization

initiative that has been ongoing for the past several years. We published an

NPR broken into two parts. The first part applies to all FDIC-insured institutions

and governs the specific time and circumstances under which account

balances will be determined, for deposit insurance purposes, in the event

of a failure. The second part applies only to the largest FDIC-insured

institutions – approximately 160 institutions with at least $2 billion in domestic

deposits and more than 250,000 deposit accounts, or total assets of more than

$20 billion, regardless of the dollar amount of deposits or number of accounts.

Under the proposal, these institutions would be required to adopt mechanisms

that would, in the event of the institution’s failure: place provisional holds on

large deposit accounts in a percentage specified by the FDIC; provide the

FDIC with deposit account data in a standard format; and allow automatic

removal of provisional holds once the FDIC makes an insurance determination.

The FDIC places a high priority on providing access to insured deposits

promptly and, in the past, has usually been able to allow most depositors

access to their deposits on the next business day. If adopted, the proposed

rule would better enable the FDIC to continue this practice, especially for

the larger, more complex institutions it insures.

Supervisory Program

Along with successfully managing an unusually large policy agenda in 2007,

we continued to administer strong and effective supervisory programs in both

the risk-management and compliance areas. We performed 2,258 safety and

soundness examinations; 1,773 compliance and Community Reinvestment Act

exams; and 2,941 specialty exams. The FDIC is the primary federal regulator

for state nonmember banks, the vast majority of which are community

banks. The core work of our examination staff continues to be the on-site

evaluations and assessment of these banks’ risk management, compliance


and consumer programs. Our field examiners are on the frontline and their

work in identifying emerging risks and promoting stability in our nation’s

economic system has been the hallmark of the FDIC for 75 years.

During the year, as the FDIC and fellow banking regulators became increasingly

concerned with the expansion of subprime hybrid ARMs and the potential

risk posed by these products, we took a leading role with the other regulators

in issuing the Statement on Subprime Mortgage Lending. The statement

describes the prudent safety and soundness and consumer protection standards that institutions should follow to ensure borrowers obtain loans they

can afford to repay. We also took a leading role in developing the interagency

Statement on Working with Mortgage Borrowers, encouraging financial

institutions to pursue strategies to mitigate losses while preserving homeownership for borrowers that are delinquent or in default, or are at imminent

risk of default. To provide guidance to entities that service residential mortgage

loans for others, the FDIC, along with the other federal financial regulatory

agencies, issued the Statement on Loss Mitigation Strategies for Servicers 

of Residential Mortgages.

To improve the quality of our examination programs, we launched our successful

Joint Examination Teams (JETs) initiative, in which examiners from both

the compliance and the risk-management sides examine FDIC-supervised

institutions identified as offering certain consumer credit products, such as

subprime loans, nontraditional mortgage loans, and third-party loan origination

arrangements. Through this team effort, we can more fully assess institutions’

various risks as well as their ability to control those risks. Our compliance

examiners have expertise in such areas as unfair and deceptive acts or

practices, the Truth-in-Lending Act, the Real Estate Settlement Procedures

Act, and the Equal Credit Opportunity Act, while our risk-management

examiners’ expertise covers such areas as credit card and mortgage banking

activities, securitization and asset-liability modeling.

As part of our continued effort to develop and maintain a highly skilled

and flexible workforce, we have expanded our internal certificate program

to include the Bank Secrecy Act, Receivership Claims, Franchise and Asset

Marketing, and Basic Compliance Examination functions. This program

allows employees to earn industry-recognized professional certifications.

Also in 2007, we implemented a number of regulatory relief provisions

included in the Financial Services Regulatory Relief Act of 2006. These

included revising Regulation R, which sets forth circumstances and conditions

under which banks can continue to effect securities transactions for customers

without being subject to registration as a broker under the Securities

Exchange Act of 1934; expanding the examination cycle for “1” and “2”

- rated banks to 18 months by raising the program’s asset threshold from

$250 million to $500 million; and developing model privacy notices – along

with other federal financial institution regulatory agencies, the Securities and

Exchange Commission and the Federal Trade Commission – which financial

institutions have the option to use. We are mindful of unnecessary regulatory

burden and will continue to eliminate it where possible.


Finally, during a year in which we witnessed a range of natural disasters

around the country, we issued 12 financial institution letters announcing

steps to provide regulatory relief to institutions and to facilitate recovery

in areas damaged by fire, flood and other natural disasters. Recognizing

the lasting damage caused by Hurricane Katrina, we also issued guidance

to remind examination personnel and the industry that communities and

families impacted by Hurricane Katrina may need additional time to recover.

Economic Inclusion

The FDIC is strongly committed to advancing economic inclusion for all

segments of society. In 2007, we launched our Alliance for Economic

Inclusion initiative in nine markets across the country, promoting the expanded

use of insured financial institutions by segments of the U.S. population that

are currently underserved by the banking industry. Broad-based coalitions

of financial institutions, community-based organizations and other partners

were formed to focus on expanding basic retail financial services for underserved populations. Services include savings accounts, affordable remittance

products, small-dollar loan programs, targeted financial education programs,

alternative delivery channels and other asset-building programs. Also,

foreclosure-prevention efforts have been integrated.

As part of our economic inclusion effort this year, we focused on assisting

financially stressed residential borrowers. Working through our Alliance for

Economic Inclusion and with NeighborWorks® America, we are promoting

a broad foreclosure-prevention initiative for consumers at risk of foreclosure

from subprime and nontraditional mortgage lending.

In addition, we hosted three meetings of the FDIC Advisory Committee on

Economic Inclusion (ComE-IN), which was approved by the FDIC Board of

Directors pursuant to the Federal Advisory Committee Act in November 2006.

The Committee provides the FDIC with advice and recommendations on

important initiatives focused on expanding access to banking services by

underserved populations. The topics addressed during the 2007 meetings

were access to small dollar loans, the subprime mortgage situation and

money services businesses and their access to the banking system.

Based on a recommendation from the Advisory Committee on Economic

Inclusion, the FDIC Board approved a two-year pilot project to review affordable

and responsible small-dollar loan programs in thirty diverse financial institutions

across the country. This program will assist bankers by identifying and

disseminating information on replicable business models for small-dollar

loans by evaluating data submitted to the FDIC about the bank’s small dollar

loans, the overall value and profitability of their program, and the benefit

to consumers.

During 2007, the FDIC also commenced work on two surveys intended to

provide extensive new data regarding economic inclusion. Both of these

survey efforts are related to a mandate in section 7 of the Federal Deposit

Insurance Reform Conforming Amendments Act of 2005 requiring the FDIC

to conduct a survey of FDIC-insured institutions every two years regarding


their efforts to serve the unbanked. The first of these surveys, the Survey of

Banks’ Efforts to Serve the Unbanked and Underbanked, will be conducted

during 2008 and is expected to yield significant insight about bank efforts

to serve unbanked and underbanked populations. The FDIC is also exploring

the feasibility of conducting a survey of U.S. households to estimate the

percentage of the U.S. population that is unbanked and underbanked. The

survey is scheduled to be conducted in January 2009 as a supplement to

the Bureau of the Census’s Current Population Survey. It is expected to yield

significant new data on the extent of the population that is unbanked and/or

underbanked and the reasons why some households do not make greater

use of traditional banking services.

We also continued promoting financial education to the unbanked and underbanked populations around the country, expanding our efforts to integrate

our Money Smart financial education program into public schools. To reach

an even wider audience with Money Smart, we distributed a revised version

of our instructor-led curriculum and an online computer-based instruction. In

2007, the FDIC surpassed its goal established at the inception of the Money 

Smart program to provide financial education to 1 million consumers. To date,

over 1.4 million consumers have taken the Money Smart curriculum.

Conclusion 

As we begin 2008, the FDIC aspires to be recognized by its employees and

stakeholders as an outstanding employer with a highly motivated and engaged

workforce that understands and is committed to the Corporation’s mission,

goals and objectives. To that end, during 2007 we conducted a comprehensive

employee survey and have plans underway to further improve the Corporation

in the areas of communication, empowerment, employee performance, and

compensation systems. Our employees have been and always will be the

FDIC’s most important resource in completing its mission. I look forward to

continued work with our dedicated staff and exceptional Board of Directors

in 2008.

The FDIC remains committed to working with bankers, consumers, fellow

regulators, Congress and others to keep the banking industry healthy and

the economy strong – a commitment that we will continue to keep into

2008 and well beyond.

Sincerely,

Sheila C. Bair
1

I am pleased to join Chairman Bair in presenting our 2007 Annual Report.

The report provides our stakeholders with meaningful financial and program

performance information and summarizes our accomplishments. Our priority

is to provide timely, reliable and useful information.

The U.S. Government Accountability Office (GAO) issued unqualified audit

opinions for the two funds administered by the Corporation: the Deposit

Insurance Fund (DIF) and the Federal Savings and Loan Insurance Corporation

(FSLIC) Resolution Fund (FRF). This marks the sixteenth consecutive year

that we have received unqualified audit opinions, and demonstrates our

continued dedication to sound financial management. It is also indicative

of the financial statements being fairly presented. Achieving this major

milestone attests to the hard work of the FDIC’s employees, and I applaud

their efforts.

The FDIC’s financial highlights during 2007 include:

For the twelve months ending December, 31, 2007, DIF’s comprehensive

income totaled $2.2 billion compared to $1.6 billion for the previous year,

an increase of 38 percent. Excluding the recognition of exit fees earned of

$345 million (a one-time adjustment) from the 2006 results, comprehensive

income rose by $1.02 billion, or 84 percent, from a year ago. This year-overyear increase was primarily due to a $611million increase in assessment

revenue, a $299 million increase in interest revenue, a $298 million decrease

in the unrealized loss on available-for-sale (AFS) securities, offset by a

$42 million increase in operating expenses and a $147 million increase in

the provision for insurance losses.

The $611 million increase in assessment revenue resulted from significant

changes to the risk-based assessment system beginning in 2007. For

2007, DIF recognized $643 million in assessment revenue, representing

$3.7 billion in gross premiums due from insured depository institutions,

net of $3.1 billion in assessment credits used. Assessment revenue

increased from $94 million in the first quarter to $245 million in the

fourth quarter. The increased revenue each quarter primarily resulted

from a reduction in the assessment credits used by financial institutions

to offset gross assessments. This trend towards higher assessment income

is expected to continue as institutions deplete their available credits. Of the

$4.7 billion in one-time assessment credits granted, $1.6 billion (34 percent)

remained as of December 31, 2007.

In 2007, we continued our efforts to reduce operating costs and prudently

manage the funds that the FDIC administers. Annual budgeted operating

expenditures for 2007 totaled approximately $1.00 billion, which represents

an increase of $29 million (3 percent) from 2006. On December 19, 2007,

the FDIC Board of Directors approved a 2008 Corporate Operating Budget

totaling $1.14 billion, a slight increase over the 2007 budget, largely due

to the cost of employee pay increases negotiated for 2008.

Message from the Chief Financial Officer • Steven O. App
Capital investment spending decreased significantly in 2007 to approximately

$12 million, roughly 48 percent of 2006 levels. This decrease is largely

attributable to the completion of two major investment projects in 2006.

The FDIC now has four active investment projects remaining. Investment

spending is projected to be $17 million in 2008.

In accordance with the requirements of the Federal Managers’ Financial

Integrity Act of 1982, the FDIC’s management conducted its annual assessment

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

with internal control standards prescribed by the Government Accountability

Office (GAO) and provides reasonable assurance that the related objectives

are being met.

Our performance in 2007 gives us confidence that we can meet the challenges

of an ever-changing banking industry. In 2008, we will continue to focus on

cost effective management of both the DIF and the FRF, while maintaining

a strong enterprise-wide risk management and internal control program.

Sincerely,

Steven O. App
1

The Year in Review

In 2007, the FDIC continued its work on high-profile policy issues, ranging

from implementation of deposit insurance reform to finalizing capital reform.

In addressing these and other issues, the Corporation published numerous

Notices of Proposed Rulemaking (NPRs) throughout the year, seeking comment

from the public. The Corporation also continued to focus on a strong

supervisory program and reorganized examination teams that inspected

financial institutions that originate significant volumes of subprime loans

and nontraditional loan products. The FDIC continued expansion of financial

education programs, providing Money Smart training to hundreds of public

school teachers. It also sponsored and co-sponsored major conferences and

participated in local and global outreach initiatives.

Highlighted in this section are the Corporation’s 2007 accomplishments

in each of its three major business lines – Insurance, Supervision and

Consumer Protection, and Receivership Management – as well as its

program support areas.

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 Fund.

Implementation of Deposit Insurance Reform

On November 2, 2006, the FDIC Board of Directors adopted a final rule on

assessments as part of the implementation of the Federal Deposit Insurance

Reform Act of 2005 (Reform Act). The new rule enables the FDIC to more

closely tie each bank’s assessments to the risk that it poses to the Deposit

Insurance Fund.

Effective January 1, 2007, assessment rates ranged from 5 to 7 basis points

for Risk Category I institutions, 10 basis points for Risk Category II institutions,

28 basis points for Risk Category III institutions and 43 basis points for Risk

Category IV institutions. These rates are uniformly 3 basis points greater than

the base assessment rates also adopted by the Board in November 2006.

The Board retains the flexibility to adjust rates without further notice-andcomment rulemaking, provided that no such adjustment can be greater than

3 basis points in any quarter; that these adjustments cannot result in rates

more than 3 basis points above or below the base rates; and that rates

cannot be negative. The table on the following page shows the distribution

of institutions among the risk categories as well as within Risk Category I.

I. Management’s Discussion and Analysis
1

Institutions that contributed to the build-up of the insurance funds through

1996 received an aggregate $4.7 billion in one-time credits under the Reform

Act to offset future deposit insurance assessments. These credits were

allocated to institutions based on their 1996 assessment base shares.

The average annualized assessment rate (weighted by each institution’s

assessment base), before accounting for the use of credits, was approximately

5.4 basis points for the first three quarters of 2007. Approximately 68 percent

of all institutions (71 percent of institutions in Risk Category I) were able to

offset their first, second, and third quarter 2007 assessments entirely using

credits.

In September 2007, the FDIC issued an Advance Notice of Proposed Rulemaking

(ANPR), seeking comments on alternative methods for allocating dividends

as part of a permanent final rule to implement the dividend requirements

of the Reform Act. In October 2006, the Board adopted a temporary rule

governing dividends, which expires at the end of 2008. The comment period

for the Dividend ANPR closed on November 19, 2007.

International Capital Standards

Ensuring the adequacy of insured institutions’ capital under Basel II remained

a key objective for the FDIC. In 2007, the FDIC devoted substantial resources

to domestic and international efforts to ensure these new rules are designed

and implemented appropriately. These efforts, in conjunction with other federal

financial regulators, included publishing a final rule for the implementation

of the advanced approaches of Basel II as well as proposed examination

guidance. This guidance is intended to provide the industry with regulatory

perspectives for implementation. In concert with regulators from other

U.S. banking agencies and other Basel Committee member countries, the FDIC

also participated in a review of supervisory and regulatory supplemental

capital measures currently being used to ensure bank capital adequacy.

The Basel II Final Rule was published in the Federal Register on

December 7, 2007, with an effective date of April 1, 2008. The findings

of the fourth quantitative impact study (QIS-4), which were completed in

2005, suggested that, without modification, the Basel II framework could

result in an unacceptable decline in minimum risk-based capital requirements.

As a result, the agencies have included safeguards against the possibility

D o l l a r s i n b i l l i o n s

 Annual Percent

 Rate in Percent of Total

 Risk Basis Number of of Total Assessment Assessment

 Category Points Institutions Institutions Base Base

I - Minimum 5	 

 I - Middle	 5.01– 6.00	 3,088	 

 I - Middle	 6.01–6.99	 1,422	 

 I - Maximum 7	 

 II 10	 

 III 28	 

 IV 43	 

 Total 8,571 100% $ 6,880 100%

 Distribution of Institutions and Assessment Base Among Risk Categories Quarter Ending September 30, 2007

Note: Institutions are categorized based on supervisory ratings, debt ratings and financial data as of September 30, 2007. 

Rates do not reflect the application of assessment credits. Percentages may not add to 100 percent due to rounding.
that the new rules do not work as intended. Through its supervisory

program, the FDIC continues to work with certain insured state non-member

bank subsidiaries of banking organizations that plan to operate under the

new capital accord, to review and assess implementation plans and progress

towards meeting qualification requirements.

Domestic Capital Standards 

The FDIC is involved in efforts to revise the existing risk-based capital standards

for banks that will not be subject to the advanced approaches of Basel II.

As such, the FDIC has taken a lead role in developing a proposed rule that

would implement the standardized approach of Basel II (Basel II Standardized

NPR). The proposed rule is intended to modernize the risk-based capital rules

for banks that do not use the advanced approaches of Basel II, and minimize

potential competitive inequities that may arise between banks that adopt

Basel II and banks that remain under the existing rules. The agencies have

indicated that they expect to issue the Basel II Standardized NPR during the

first quarter of 2008.

Center for Financial Research 

During 2007, the FDIC’s Center for Financial Research (CFR) co-sponsored

two major research conferences: the 17th Annual Derivatives Securities

and Risk Management Conference and the seventh Annual Bank Research

Conference.

The 17th Annual Derivatives Securities and Risk Management Conference,

which the FDIC co-sponsored with Cornell University’s Johnson Graduate

School of Management and the University of Houston’s Bauer College

of Business, was held in April 2007 at FDIC’s Virginia Square facility and

attracted over 100 researchers from around the world.

The CFR and The Journal of Financial Services Research (JFSR) hosted the

seventh Annual Bank Research Conference in September with over 100

attendees. The conference included the presentation of 12 papers, a nationally

recognized guest speaker, Francis A. Longstaff – Allstate Professor of

Insurance and Finance, Anderson School of Management, UCLA, an expert

panel, and discussions on timely issues affecting the financial system.

The CFR also hosted the Basel Research Task Force Annual Workshop in May.

Approximately 85 researchers and policy makers attended the workshop.

Additionally, the FDIC along with the Federal Reserve Bank of Chicago, the

University of Kansas School of Business, and The JFSR, co-sponsored the

Mergers and Acquisitions of Financial Institutions Conference in November.

Ten CFR working papers were published in 2007 on topics including risk

measurement, exchange rate exposure, and financial institution credit and

retail banking relationships.
Supervision and Consumer Protection

Supervision and consumer protection are cornerstones of the FDIC’s efforts

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

The FDIC’s supervision program promotes the safety and soundness of FDICsupervised insured depository institutions, protects consumers’ rights, and

promotes community investment initiatives.

Examination Program 

The FDIC’s strong bank examination program is the core of its supervisory

program. At year-end 2007, the Corporation was the primary federal regulator

for 5,257 FDIC-insured state-chartered institutions that are not members of

the Federal Reserve System (generally referred to as “state nonmember”

institutions). Through safety and soundness, consumer compliance and

Community Reinvestment Act (CRA), and other specialty examinations, 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.

In 2007, the Corporation conducted 2,258 statutorily-required safety and

soundness examinations, including a review of Bank Secrecy Act compliance,

and all required follow-up examinations for FDIC-supervised problem

institutions within prescribed time frames. The FDIC also conducted 1,773

CRA/Compliance examinations (1,241 joint CRA/compliance examinations,

528 compliance-only examinations,1 and four CRA-only examinations) and

2,941 specialty examinations. All CRA/compliance examinations were also

conducted within the time frames established by FDIC policy, including

required follow-up examinations of problem institutions. The table on the

following page compares the number of examinations, by type, conducted

in 2005, 2006 and 2007.

1	Compliance-only examinations are conducted for most institutions at or near t

	 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 

	 they receive a CRA rating of “Satisfactory” on their most recent examination.
As of December 31, 2007, there were 77 insured institutions with total assets

of $22.2 billion designated as problem institutions for safety and soundness

purposes (defined as those institutions having a composite CAMELS2 rating

of “4” or “5”), compared to the 51 problem institutions with total assets

of $8.5 billion on December 31, 2006. This constituted a 51 percent yearover-year increase in the number of problem institutions and a 161 percent

increase in problem institution assets. During 2007, 38 institutions with

aggregate assets of $6.4 billion were removed from the list of problem

financial institutions, while 64 institutions with aggregate assets of $26.5 billion

were added to the list of problem financial institutions. The FDIC is the primary

federal regulator for 47 of the 77 problem institutions.

During 2007, the Corporation issued the following formal and informal

corrective actions to address safety and soundness concerns: 48 Cease and

Desist Orders, three Temporary Cease and Desist Orders, one modified Cease

and Desist Order, and 158 Memoranda of Understanding. Of these actions

issued, 25 Cease and Desist Orders and 31 Memoranda of Understanding

were issued based, in part, on apparent violations of the Bank Secrecy Act.

2	 The CAMELS composite rating represents the adequacy of Capital, the quality of

Assets, the capability of Management, the quality and level of Earnings, the adequacy

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

	 to “5” (weakest).

2007 2006 

Safety and Soundness:

State Nonmember Banks 2,039 2,184 2,19

Savings Banks 213 201 19

Savings Associations 3 2 1

National Banks 0 0 0

State Member Banks 3 1 1

Subtotal - Safety and Soundness Examinations 2,258 2,388 2,3

CRA/Compliance Examinations:

Community Reinvestment Act - Compliance 1,241 777 

Compliance-only 528 1,177 1,1

CRA-only 5 

Subtotal CRA/Compliance Examinations 1,773 1,959 2,

Specialty Examinations:

Trust Departments 18 468 

Data Processing Facilities 2,523 2,584 2,70

Subtotal-Specialty Examinations 2,941 3,052 3,

Total 6,972 7,399 7,

FDIC Examinations 2005-2007
As of December 31, 2007, 43 FDIC-supervised institutions were assigned

a “4” rating for safety and soundness and four institutions were assigned

a “5” rating. Forty-two of the “4”-rated institutions were examined in 2007,

and formal or informal enforcement actions have been finalized to address

the FDIC’s examination findings. All “5”-rated institutions were examined

in 2007.

As of December 31, 2007, eight FDIC-supervised institutions were assigned

a “4” rating for compliance; no institutions were assigned a “5” rating. In

total, three of the “4”-rated institutions were examined in 2007; three were

examined prior to 2007 but are currently in various stages of appealing the

ratings, and the remaining two were examined in 2006. With regard to

the two for which examinations were last conducted in 2006, an informal

enforcement action for one was issued in September 2007; therefore, an

examination is not due until 2008. The other institution is operating under

a Cease and Desist Order and the examination remains open.

The Corporation has issued enforcement actions to address the examination

findings for all five of the institutions that were not in the process of an

appeal. These actions include one Cease and Desist Order as noted above

and four Memoranda of Understanding.

Joint Examination Teams 

The FDIC used joint compliance/risk management examination teams (JETs)

to assess risks associated with new, nontraditional and/or high-risk products

being offered by FDIC-supervised institutions. The JET approach recognizes

that to fully understand the potential risks inherent in certain products and

services, the expertise of both compliance and risk management examiners

is required. The JET approach has three primary objectives:

•	 To enhance the effectiveness of the FDIC’s supervisory examinations

	 in unique situations;

•	 To leverage the skills of examiners who have experience with emerging

	 and alternative loan and deposit products; and

•	 To ensure that similar supervisory issues identified in different areas

	 of the country are addressed consistently.

The JET concept evolved from the FDIC’s examination of state nonmember

banks that were conducting payday lending activities through third-party

vendors. Payday lending involved unique and complex products with

significant safety and soundness and consumer protection risks for the

institutions involved in this activity.
Subprime Hybrid Adjustable Rate Mortgages

In 2007, the FDIC continued to closely monitor the expansion of subprime hybrid

adjustable rate mortgages (ARMs), typically offered to subprime borrowers.

Hybrid ARMs start with a low fixed interest rate for an initial period, which

often lasts for two to three years, and then resets to a variable rate.

Mortgage lenders typically qualified borrowers based on the low introductory

payment amount rather than at the fully indexed interest rate, assuming a

fully amortizing repayment schedule. Such underwriting standards and loan

terms can cause payment shock, the consequences of which may not have

been fully explained to borrowers. In addition, many lenders combined these

loans with other potentially risky features, such as requiring little or no

documentation of income, high loan-to-value ratios, and simultaneous

second-lien mortgages, which could compound the risk to both borrowers

and lenders.

To address these concerns, the FDIC joined the other federal financial

institution regulatory agencies in issuing the Statement on Subprime 

Mortgage Lending (Subprime Guidance) on July 10, 2007. The guidance

covers three primary areas: risk management practices, consumer protection

principles, and control systems. The risk management section focuses

on avoiding predatory lending, following prudent underwriting standards

for qualifying borrowers, and encouraging institutions to work constructively

with residential borrowers who are in default or whose default is reasonably

foreseeable.

Working through Mortgage Resets

The FDIC became increasingly concerned about borrowers’ ability to service

the higher debt load resulting from payment shock when their hybrid ARMs

payments reset. Many borrowers, especially those who were qualified at

a low introductory payment amount rather than the fully indexed interest

rate and on a fully amortizing repayment schedule, may not have sufficient

financial capacity to make the higher contractual payments owed on their

home loans.

To address this concern, the FDIC led the agencies in issuing the Statement 

on Working with Mortgage Borrowers in April 2007. This guidance primarily

addresses those instances when a financial institution has retained a

residential mortgage loan on its books. The agencies issued the Statement 

on Loss Mitigation Strategies for Servicers of Residential Mortgages in

September 2007 to provide guidance to entities that service residential

mortgage loans for others. In addition, the FDIC joined the Conference

of State Bank Supervisors and the American Association of Residential

Mortgage Regulators in issuing the Supplemental Information for Loss 

Mitigation Strategies. This guidance encourages servicers to consider

the borrower’s ability to repay modified obligations, taking into account

the borrower’s total monthly housing-related payments as a percentage

of the borrower’s gross monthly income.
The FDIC is encouraging servicers to adopt a streamlined approach to

making the decision to grant loan modifications where necessary. Where

the homeowner generally has been current at the starter rate, but cannot

refinance in today’s market or make the higher payments after the interest

rate resets, then the loan should be modified to keep it at the starter rate

for a long-term sustainable period. Such modification arrangements would

also benefit lenders and investors who would not only have a higher level of

performing loans, but would also avoid administrative expenses associated

with servicing delinquent debts or foreclosing on the property. In addition,

financial institutions may receive favorable CRA consideration for programs

that transition low-to moderate-income borrowers from higher cost credit to

lower cost credit, provided that the loan modifications are made in a prudent

manner.

Protection of Federal Benefit Payments 

The FDIC, along with the other federal financial institution regulators, proposed

guidance that encourages federally regulated financial institutions to follow

best practices to protect federal benefit payments from garnishment orders.

Federal law protects federal benefit payments – such as Social Security

benefits and Veterans’ benefits – from garnishment orders and the claims

of judgment creditors, subject to certain exceptions. Creditors and debt

collectors are often able to obtain orders from state courts garnishing funds

in a consumer’s account that do not meet the requirements of exempt funds.

To comply with state court garnishment orders, financial institutions often place

a temporary freeze or hold on an account upon receipt of a garnishment order,

which can cause significant hardship for the account holder. The agencies

developed proposed guidance, which includes best practices, to encourage

financial institutions to minimize the hardships encountered by federal benefit

funds recipients and to do so while remaining in compliance with applicable

laws. The comment period closed in November 2007 and the agencies have

reviewed the comments and will determine the best course of action during

2008.

Large Complex Financial Institution Program

In 2007, the FDIC led a comprehensive initiative to standardize data capture

and reporting through the Large Insured Depository Institution (LIDI) Program.

Under this Program, supervisory staff throughout the nation performs

comprehensive quantitative and qualitative risk analysis on institutions with

assets over $10 billion, or under this threshold at regional discretion. This

information is used by various business lines to perform critical functions

related to insurance, resolutions and supervision.
20

In 2007, the FDIC supported the insurance function in analyzing and setting

appropriate insurance premiums for large insured financial institutions. The

Corporation also led and supported various initiatives designed to better

understand potential resolution challenges posed by complex insured

financial institutions.

The FDIC continued to assess internal and industry preparedness relative to

Basel II capital rules and was actively involved in domestic and international

discussions intended to ensure effective implementation of the New Capital

Accord. This included participation in numerous supervisory working group

meetings with foreign regulatory authorities to address Basel II home-host

issues.

Bank Secrecy Act/Anti-Money Laundering 

The FDIC pursued a number of Bank Secrecy Act (BSA), Counter-Financing

of Terrorism (CFT) and Anti-Money Laundering (AML) initiatives in 2007.

International AML/CFT Initiatives 

The FDIC conducted three training sessions in 2007 for 57 central bank

representatives from Algeria, Bosnia, Egypt, Indonesia, Jordan, Kuwait,

Morocco, Pakistan, Paraguay, Philippines, Tanzania, and Turkey. The training

focused on AML/CFT controls, the AML examination process, customer

due diligence, suspicious activity monitoring, and foreign correspondent

banking. The sessions also included presentations from the Federal Bureau

of Investigation on combating terrorist financing, and the Financial Crimes

Enforcement Network (FinCEN) on the role of financial intelligence units

in detecting and investigating illegal activities.

In addition to hosting onsite AML/CFT instruction, the FDIC provided guidance

and resources for international AML/CFT financial system assessments

and training. In 2007, the FDIC provided technical assistance in Yemen and

Senegal to evaluate AML controls and each country’s AML statutory and

legislative framework. Also, the FDIC delivered an AML presentation at the

U.S.-Middle East/North Africa Private Sector Dialogue conference in Dubai,

United Arab Emirates. Finally, the FDIC met with representatives from the

Deposit Insurance Corporation of Japan, the Korean Financial Intelligence

Unit, the Banco Central del Uruguay and the Bank of Al-Maghrib, Morocco,

to discuss the AML examination process, enforcement authority and the

FDIC’s supervisory role in combating money laundering and other illicit

financial activities.

Enforcement Actions 

The FDIC, along with the other federal banking agencies, released the

Interagency Statement on Enforcement of BSA/AML Requirements on

July 19, 2007. The statement provides for greater consistency in BSA

enforcement decisions and offers insight into how those decisions were
2

made. The statement describes the circumstances and provides examples

under which the federal banking agencies will issue a cease and desist

order. Applicable statutes mandate that the appropriate agency shall issue

a cease and desist order if a regulated institution fails to establish and

maintain a BSA compliance program or correct a previously identified

problem with its BSA compliance program.

Promoting Economic Inclusion

The FDIC pursued a number of initiatives in 2007 to promote inclusion

of traditionally underserved populations in banking services and to ensure

protection of consumers in the provision of these services.

The Advisory Committee for Economic Inclusion 

The FDIC Advisory Committee on Economic Inclusion (ComE-IN) was

established by Chairman Sheila C. Bair and the FDIC Board of Directors

pursuant to the Federal Advisory Committee Act. The ComE-IN was

chartered in November 2006, and provides the FDIC with advice and

recommendations on important initiatives focused on expanding access

to banking services by underserved populations.

Three ComE-IN meetings were held during 2007. The inaugural meeting

addressed access to affordable small dollar loans. One recommendation

that resulted was to launch a small dollar loan pilot program. The Board of

Directors of the FDIC subsequently approved a two-year pilot project to

review affordable and responsible small-dollar loan programs in financial

institutions. The purpose of the study is to identify effective and replicable

business practices to help banks incorporate affordable small-dollar loans

into their other mainstream banking service offerings. Best practices

resulting from the pilot will be identified and become a resource for other

institutions.

The second meeting addressed the subprime mortgage situation, how it

developed and possible solutions. The third meeting covered ways to ensure

safe, available services for the money services businesses and examined

their access to the banking system.

Alliance for Economic Inclusion 

In 2007, the FDIC formally launched the Alliance for Economic Inclusion (AEI),

a broad-based coalition of banks, community organizations, foundations,

educators, and local, state and federal agencies in nine underserved markets

across the nation – the Greater Boston area; Wilmington, DE; Baltimore, MD;

South Texas (Houston/Austin); Chicago; the Louisiana and Mississippi Gulf

Coast; Alabama’s Black Belt; Kansas City; and Los Angeles. These diverse

markets include low- and moderate-income neighborhoods, urban neighborhoods, minority communities and rural areas. The goal of the AEI initiative

is to work with financial institutions and other partners in select markets to

bring those who are unbanked and underserved into the financial mainstream.
22

More than 700 banks and other organizations have joined the AEI. Under the

auspices of the AEI, approximately 28,000 bank accounts have been opened;

29,000 consumers have received financial education; 41 banks are developing

small-dollar loan programs; and 21 banks now offer remittance products

allowing customers to send money to friends or family members outside the

U.S. The FDIC has also included a component of its foreclosure prevention

efforts within the AEI.

Affordable Small-Dollar Loan Guidelines and Pilot Program

Many consumers with bank accounts turn to high-cost payday or other

non-bank lenders because they are accessible and can quickly provide small

loans to cover unforeseen circumstances. To help enable insured institutions

to better serve an underserved and potentially profitable market while helping

consumers avoid, or transition away from, reliance on high-cost debt, the

FDIC issued its Affordable Small-Dollar Loan Guidelines on June 19, 2007.

The guidelines explore several aspects of product development, including

affordability and streamlined underwriting. They also discuss tools, such

as financial education and linked savings accounts that may address longterm financial issues that concern borrowers. The guidelines also note that

FDIC-supervised institutions offering products that comply with consumer

protection laws, and are structured in a responsible, safe and sound manner,

may receive favorable consideration under the Community Reinvestment Act

(CRA). Additionally, on June 19, 2007, the FDIC Board approved a two-year

pilot project to review affordable and responsible small-dollar loan programs

in financial institutions and assist bankers by identifying and disseminating

information on replicable business models for small-dollar loans.

Minority Depository Institutions

The FDIC’s Minority Bankers’ Roundtable series is a forum designed

to, among other things, explore possible partnerships between the MDI

community and the FDIC, as well as to seek input on how the FDIC can

better promote the availability of technical assistance to the MDI segment

of the industry. From the 2006 Roundtable sessions evolved ideas for two

partnerships that were piloted during 2007. The first initiative, a “University

Partnerships” pilot, is designed to do the following:

• Promote financial literacy at Historically Black Colleges and Universities

	 (HBCUs) or other schools with a significant minority population;

• Provide the partnering MDI and the FDIC an opportunity to keep the

	 business school deans aware of current industry issues and to build

	 goodwill on campus; and

• Offer both the MDI and the FDIC an opportunity to showcase their

	 respective career opportunities.
23

The second 2007 Roundtable initiative involved partnering with the Puerto Rico

Bankers Association to deliver a high-level specialized Compliance School.

This event took place from November 6-9, 2007, in San Juan, Puerto Rico,

and was attended by 150 bankers. This type of partnership was the first

for the FDIC and was consistent with the goal of increasing usage of FDIC

technical assistance.

In July 2007, the FDIC hosted the second annual National Minority Depository

Institution Conference in Miami, Florida. This event was coordinated on an

interagency basis and drew approximately 170 attendees. In addition to

presentations by senior officials from all of the federal banking regulatory

authorities, the program covered these topics: Broadening Access to the

Financial Mainstream, Opportunities for NeighborWorks® America and

Minority Community Bankers, and Capital Enhancement and Investment

Opportunities, including a presentation on the Community Development

Financial Institution Fund. The program also included workshops on

Information Technology, BSA Emerging Issues, Compliance and CRA

Hot Topics, and the Revised Interagency Policy Statement on the

Allowance for Loan and Lease Losses. Feedback from the attendees

was overwhelmingly positive. A third annual interagency conference

is planned for 2008.

Information Technology, Cyber Fraud and Financial Crimes 

The FDIC and other FFIEC regulatory agencies jointly issued guidance

requiring financial institutions to strengthen account access credentials in

an effort to curb online fraud and protect both consumer and commercial

Internet banking customers. The guidance required the implementation of

stronger authentication for most institutions on or before January 1, 2007.

FDIC examiners tracked and reported on compliance with the guidance

during various examination activities in 2007. Details collected suggest that

an overwhelming majority (94 percent) of the institutions have complied

with the provisions of the guidance. Most of the remaining institutions have

plans to comply. Industry feedback suggests that stronger authentication has

reduced online Internet banking-related fraud through more secure access

credential management practices.

Other major accomplishments during 2007 in combating identity theft included

the following:

• Assisted financial institutions in identifying and shutting down approximately

	 1,400 “phishing” Web sites. The term “phishing” – as in fishing for

	 confidential information – refers to a scam that encompasses fraudulently

	 obtaining and using an individual’s personal or financial information.

• Issued 323 Special Alerts to FDIC-supervised institutions of reported

	 cases of counterfeit or fraudulent bank checks.
2

• Participated on the President’s Identity Theft Task Force and five of its

	 primary subgroups. The FDIC was one of seventeen federal agencies

	 that participated. The Task Force submitted its report to the President

	 on April 11, 2007. The report contains a comprehensive description of

	 the problem as well as numerous recommendations concerning what

	 the federal government and private industry can do to mitigate this

	 serious problem. Since the report was submitted to the President, the

	 FDIC continues to participate in several Task Force subgroups that are

	 performing additional research on specific aspects of identity theft and

	 plan to submit additional recommendations to the President in the

	 spring of 2008.

• The FDIC, in addition to the other federal banking agencies and the Federal

	 Trade Commission, published a final identity theft red flag regulation and

	 guidelines on November 9, 2007. The regulation and guidelines implement

	 sections 114 and 315 of the Fair and Accurate Credit Transactions Act of

	 2003. Compliance is expected by November 1, 2008.

Consumer Complaints and Inquiries 

The FDIC investigates consumer complaints about FDIC-supervised institutions

and answers inquiries from the public about consumer protection laws and

banking practices. In 2007, the FDIC received 11,624 written complaints,

of which 4,457 were against state nonmember institutions. The Corporation

responded to over 93 percent of these complaints within timeliness standards

established by corporate policy. The FDIC also responded to 3,656 written

and 3,321 telephone inquiries from consumers regarding state nonmember

institutions. Overall in 2007, the FDIC handled 5,856 consumer telephone

calls from the public and members of the banking community about consumer

protection issues not including deposit insurance inquiries.

Deposit Insurance Education

The FDIC has an extensive deposit insurance education program consisting

of seminars for bankers, electronic tools for estimating deposit insurance

coverage, and written and electronic information targeted for both bankers

and consumers. The FDIC also responds to thousands of telephone and

written inquiries each year from consumers and bankers regarding FDIC

deposit insurance coverage. The FDIC completed a multi-pronged effort in

2007 to update numerous publications and educational tools for consumers

and bankers on FDIC insurance coverage, including consumer brochures,

banker resource guides, videos and the Electronic Deposit Insurance

Estimator.

The FDIC hosted two identical series of telephone seminars for bankers

on the FDIC’s rules for deposit insurance coverage. Each series consisted

of topics on Basic Concepts of Deposit Insurance Coverage, Coverage for

Retirement and Employee Benefit Plan Accounts, Trust Account Coverage,

and Coverage for Business and Government Accounts. These free seminars
2

were open to employees of all FDIC-insured banks and savings associations.

The telephone conferences were attended by bankers in approximately

11,000 locations. Many of these locations represent bank branch offices

where multiple employees took part in the training.

The FDIC coordinated with bank trade associations to conduct seven

comprehensive seminars for financial institution employees on the rules

for deposit insurance coverage. These seminars, which were conducted in

classroom settings throughout the United States, provided a comprehensive

review of how FDIC insurance works, including the 2006 changes to the

FDIC’s final rules for insurance coverage.

The FDIC also completed a comprehensive and authoritative resource guide

for bankers, attorneys, financial advisors and similar professionals on the

FDIC’s rules and requirements for deposit insurance coverage of revocable

and irrevocable trust accounts. The new trust guidebook will be published

on the FDIC’s Web site in the first quarter of 2008.

In 2007, the FDIC received over 119,000 telephone and written inquiries

from consumers and bankers regarding federal insurance coverage of

bank deposits. Of these inquiries, 4,125 required formal written responses,

98 percent of which were completed within timeliness standards established

by corporate policy.

Financial Education and Community Development

In 2001, the FDIC – recognizing the need for enhanced financial education

across the country – inaugurated its award-winning Money Smart curriculum,

which is now available in six languages, large print and Braille versions for

individuals with visual impairments and a computer-based instruction version.

Since its inception, over 1.4 million individuals (including approximately

200,000 in 2007) have participated in Money Smart classes and self-paced

computer-based instruction. Approximately 163,000 of these participants

have subsequently established new banking relationships. During 2007, the

FDIC updated and enhanced the Money Smart curriculum and training tools.

These changes included guidance on consumer-related concerns such as

identity theft, remittances and how to assess mortgage product options.

In recognition that public schools are one of the best venues for reaching

the next generation of consumers of all income levels, the FDIC embarked

on a pilot project to expand its outreach and enhance the availability of the

Money Smart financial curriculum in high schools. Over 339 schools, school

systems and related entities have been contacted regarding the availability

of Money Smart. Several hundred secondary school teachers and volunteers

have been trained to deliver Money Smart. The FDIC also began work on

developing a Money Smart curriculum for young adults.
2

The FDIC completed a major multi-year study in 2007 to evaluate the

effectiveness of the Money Smart curriculum. The study, A Longitudinal 

Evaluation of the Intermediate-term Impact of the Money Smart Financial 

Education Curriculum upon Consumers’ Behavior and Confidence, shows

that the training can positively influence how people manage their finances.

The survey examines the impact of financial education on the behavior of a

broad audience up to one year after completing the training. The goal was to

measure, over time, not only whether trainees’ knowledge of financial matters

improved, and whether they intended to change their financial behaviors,

but also whether, months after the training, they had actually acted on their

intentions. Survey results indicate that those who took the Money Smart 

course were more likely to open deposit accounts, save money, use and

adhere to a budget, and have increased confidence in their financial abilities

when contacted 6 to 12 months after completing the course. A majority of

those surveyed reported an increase in personal savings, a decrease in debt,

a better understanding of financial principles, and an increased willingness

to comparison shop for financial services.

International Outreach

During 2007, the FDIC focused its international programs and activities toward

the goal of helping to build strong and effective systems for protecting

depositors, supervising financial institutions and resolving failures. Efforts

included arranging and conducting training sessions, technical assistance

missions and foreign visits, leadership roles in international organizations,

bilateral consultations with foreign regulators, and many other activities

and consulting services.

The FDIC’s strengthened international leadership role paved the way for

the election of the FDIC’s Vice Chairman to the position of President of

the International Association of Deposit Insurers (IADI) and Chair of the

IADI Executive Council. In addition, the Vice Chairman, as Chair of the IADI

Training and Conference Standing Committee, developed and led the firstever Executive Training Program, providing training to 35 IADI members from

27 countries. The FDIC was elected for the first time to serve on the Board

of Directors for the Association of Supervisors of Banks in the Americas

(ASBA) and to represent the North American Region. The FDIC’s leadership

within ASBA included providing technical training to ASBA members on

operational risk management and leading two working groups in developing

ASBA guidance on key supervisory issues. The FDIC also established strong

working relationships and presented at several European Forum of Deposit

Insurers (EFDI) meetings, including the EFDI/IADI Joint Symposium on Cross

Border Issues.

The FDIC continued to enhance the effectiveness and broaden the scope

and impact of its three primary international programs – technical assistance,

foreign visitors and training. The FDIC provided technical assistance to

12 central banks, bank supervisors and deposit insurers from 11 countries.

A highlight of this assistance was an expanded partnership with the Financial
2

Services Volunteer Corp (FSVC) in supporting the Central Bank of Egypt in

developing an examiner commissioning program. The FDIC also provided

critical technical assistance to Albania on resolution practices and the legal

framework for establishing the backup financial support from the government

to strengthen the deposit insurance safety net. In addition, the FDIC hosted

66 foreign country visits, including 417 foreign visitors from 28 countries.

Noteworthy among these visits was the second U.S.- China Seminar on Bank

Supervision, delegations representing parliament officials from South Africa,

United Kingdom, Sweden and Italy, and an extended visit by board members

and staff of the Nigerian Deposit Insurance Corporation. Lastly, 168 foreign

students from 17 countries received training in examinations, financial

institution analysis, loan analysis, examination management, information

technology examination, and anti-money laundering and counter-terrorism

financing.

The FDIC expanded relationships with key international banking and deposit

insurance organizations by expanding the secondment program (detailing

staff from one country to another), technical assistance agreements and

initiating new supervisory information sharing agreements. Secondment

Memoranda of Understanding (MOU) were entered into with Japan, Albania,

Poland, Nicaragua, and Korea to allow for selected employees from these

countries to come to the FDIC to receive training and gain expertise in areas

of supervision, resolution management and deposit insurance. Technical

assistance agreements were executed with the People’s Bank of China and

the U.K. Financial Services Authority, providing FDIC subject matter expertise

in promoting deposit insurance best practices.

Receivership Management

The FDIC has the unique mission of protecting depositors of insured banks

and savings associations. No depositor has ever experienced a loss on the

insured amount of his or her deposit in an 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 – and the FDIC is appointed receiver, it is responsible

for resolving the failed bank or savings association. The FDIC gathers data

about the troubled institution, estimates the potential loss to the insurance

fund from various resolution alternatives, solicits and evaluates bids from

potential acquirers (if any), and recommends the least-costly resolution

method to the FDIC’s Board of Directors for approval.

Resolving Financial Institutions Failures 

During 2007, three FDIC-insured institutions failed. The accompanying

chart on the following page provides liquidation highlights and trends

for the past three years. No federally-insured financial institution failures

occurred in either 2005 or 2006.
2

• Metropolitan Savings Bank in Pittsburgh, Pennsylvania, was the first

	 FDIC-insured institution closed since June 2004. This institution was

	 closed by the Pennsylvania Department of Banking on February 2, 2007.

• NetBank of Alpharetta, Georgia, was closed by the Office of Thrift

Supervision on September 28, 2007. NetBank was an Internet bank

	 and had no physical branches.

• Miami Valley Bank of Lakeview, Ohio, was closed by the Ohio Superintendent

	 of Financial Institutions on October 4, 2007.

Receivership Management Activities

The FDIC, as receiver, manages the failed banks and their subsidiaries with

the goal of expeditiously winding up their affairs. The oversight and prompt

termination of receiverships help to preserve value for the uninsured depositors

and other creditors by reducing overhead and other holding costs. Once the

assets of a failed institution have been sold and the final distribution of any

proceeds is made, the FDIC terminates the receivership estate. In 2007,

the number of receiverships under management was reduced by 22 percent

(from 55 to 43), while the book value of assets under management increased

by 158 percent (from $352 million to $907 million).

Receivership-Related Securities Disposition and Cash Collections

A total of 56 securities, including mortgage-backed securities, swap agreements,

corporate bonds and common stock, were managed throughout the year

or were sold, with cash collections from sales and management totaling

approximately $29 million.

Claims Administration System and Related Notice of Proposed 

Rulemaking

During 2007, the FDIC identified requirements and completed the highlevel design of a new insurance determination system called the Claims

Administration System, targeted to be implemented in 2009. The FDIC also

issued a Notice of Proposed Rulemaking that, in the event of a financial

institution failure, would require all insured institutions, regardless of size

2007 2006 

Total Institutions Resolved 3 0 0

Assets of Resolved Institutions $ 2.34 $ 0.00 $ 0.0

Net Collections from Assets in Liquidation●$ 1.25   0.17   0.

Total Assets in Liquidation●$ 0.91   0.35   0.

Total Dividends Paid●$ 1.65   0.17   0

Savings Over Cost of Liquidation■$ .36 $ 0 $ 

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

Resolution Trust Corporation.

Least Cost Test Savings. The least cost test is performed prior to resolution to rank order the various resolution 

alternatives by estimated cost to the Deposit Insurance Fund.

D o l l a r s i n b i l l i o n s

Liquidation Highlights 2005-2007

●

■
2

to assist in the insurance determination process and to provide the FDIC

with depositor data in a standard format. In both 2005 and 2006, the FDIC

had issued Advance Notices of Proposed Rulemaking on this topic.

Asset Servicing Technology Enhancement Project 

In 2007, the Asset Servicing Technology Enhancement Project (ASTEP)

implemented a new asset management system called 4C. This effort takes

advantage of new technology and replaces several outdated systems. The

4C system currently supports the management of receivership loans, real

estate, securities, and other assets. It also provides a data warehouse. On

May 8, 2007, the FDIC Board of Directors approved funding for the inclusion

of the institution franchise and the asset marketing functions in the 4C system.

4C will be completed in late 2008 allowing the FDIC to more efficiently

market financial institutions franchises, manage and sell the assets of failed

banks, and to easily report on these activities.

Protecting Insured Depositors 

Although the FDIC’s focus 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

institutions that fail. The FDIC’s ability to attract healthy institutions to assume

deposits and purchase assets of failed banks and savings associations at

the time of failure 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 $100,000 (or $250,000) insurance limit. During 2007, the FDIC

paid dividends of $64.3 million to depositors whose accounts exceeded the

insured limit(s).

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 meritorious and cost effective to pursue, the FDIC initiates legal

action against the appropriate parties. During the year, the FDIC recovered

approximately $47.1 million from these professional liability claims. In addition,

as part of the sentencing process for those convicted of criminal wrongdoing

against institutions that later failed, a court may order a defendant to pay

restitution or to forfeit funds or property to the receivership. The FDIC,

working in conjunction with the U.S. Department of Justice, collected more

than $5.3 million in criminal restitution during the year. At the end of 2007,

the FDIC’s caseload was comprised of nine professional liability lawsuits

(up from 8 at year-end 2006), 34 open investigations (up from 2), and

93 active settlement collections (down from 97). At year end, there

were 687 active restitution and forfeiture orders (down from 814). This

includes 357 Resolution Trust Corporation orders that the FDIC inherited

on January 1, 1996.
30

Effective Management of Strategic Resources

The FDIC recognizes that it must effectively manage its human, financial,

and technological resources in order to successfully carry out its mission and

meet the performance goals and targets set forth in its annual performance

plan. The Corporation must align these strategic resources with its mission

and goals and deploy them where they are most needed in order to enhance

its operational effectiveness and minimize potential financial risks to

the Deposit Insurance Fund. Major accomplishments in improving the

Corporation’s operational efficiency and effectiveness during 2007 follow.

Human Capital Management

The FDIC’s human capital management program is designed to attract,

develop, reward and retain a highly skilled, cross-trained, diverse and resultsoriented workforce. In 2007, the FDIC continued to implement workforce

planning and development initiatives, as well as strategies to more fully

engage employees in advancing the Corporation’s mission.

Succession Management Strategies

During 2007, the FDIC began implementing a number of initiatives aimed

at strengthening our human capital capabilities. First, senior leadership

distributed a summary report of the findings of the 2006 Executive Manager

(EM) talent review to all EMs. As a result of the review, several recommended

succession planning initiatives are being pursued, and the talent review

process will be cascaded down to capture Corporate Manager (CM) II leaders

in the first quarter of 2008. Second, the Office of Personnel Management’s

management competency assessment tool was administered to all EMs and

CMs to establish a baseline for identifying and closing leadership competency

gaps. Finally, the Corporate Executive Development Program was launched

with the selected high potential employees beginning an 18-month program

of rotational assignments, mentoring and training that will prepare them to

assume leadership roles in the Corporation as part of the succession plan.

The FDIC will continue to pursue these and other succession management

initiatives in 2008 and the years to come.

Corporate Employee Program

During 2007, the FDIC continued its focus on new employee development

through the Corporate Employee Program, which is the pipeline for new

employees into the Corporation’s business line divisions. The program provides

a foundation across the full spectrum of the Corporation’s business lines,

allowing for greater flexibility to respond to changes in the financial services

industry and in meeting the Corporation’s staffing needs. At the end of 2007,

364 employees had entered the multi-year, multi-disciplined program.
3

Employee Learning and Growth 

The FDIC implemented its Professional Learning Account Program, which

emphasizes continuous employee learning and growth. It provides employees

a greater role in planning their career development. Also, to further enhance

the FDIC’s readiness and flexibility, the internal certificate program was

expanded during 2007 to include the areas of Bank Secrecy Act, Receivership

Claims, Franchise and Asset Marketing, and Basic Compliance Examination

functions. In addition, the FDIC continued its sponsorship of industry-recognized

professional certifications such as Certified Anti-Money Laundering Specialist

(CAMS); Certified Fraud Examiner (CFE); Certified Information Systems

Auditor® (CISA®); Certified Regulatory Compliance Manager (CRCM);

Chartered Financial Analyst® (CFA®); and Financial Risk Manager® (FRM®).

Information Technology Management

Information technology (IT) resources are one of the most valuable assets

available to the FDIC in fulfilling its corporate mission. The FDIC continued

to improve its IT administration and management practices in 2007.

Enterprise Architecture

The Corporation is committed to using IT to improve the operational efficiency

of its business processes. In 2007, the IT program focused on establishing an

economical enterprise architecture that supports effective IT systems portfolio

management as well as security and privacy programs. This architecture,

which is being implemented over a three- to five-year time frame, will provide

for better accountability and transparency while offering service delivery

efficiencies.

Internet Program

The FDIC’s public Web site, www.fdic.gov, is a key communication delivery

method for the FDIC. Each of the three major business lines – Insurance,

Supervision, and Receivership Management – utilizes the Web site extensively.

A Brown University research study released in July 2007, ranked the FDIC’s

Web site eighth in federal government Web sites, up from 27th last year.

The FDIC’s Web site was the highest ranked among all federal bank regulators.

During a typical weekday, www.fdic.gov hosts approximately 30,000 user

sessions. On October 5, 2007, a day after the Miami Valley Bank closing,

the FDIC logged 157,986 user sessions. This was the largest single day

usage for the Web site, representing a 500 percent increase in traffic and

resulting in over 2.6 million hits to www.fdic.gov in a 24-hour period. To

ensure the continued availability of this facility, the robustness and security

of the Web site were improved during 2007.

Securing the FDIC

During 2007, many IT initiatives were undertaken to provide a more secure

environment within the FDIC, including implementation of tools to combat

the increasing levels of Internet and e-mail scams, conducting disaster

recovery tests and updating the Corporation’s disaster recovery plan,

and conducting privacy and sensitive data walk-about inspections.
32

Deposit Insurance Fund Performance

The FDIC administers the Deposit Insurance Fund (DIF) and the FSLIC

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

Savings and Loan Insurance Corporation (FSLIC) and the former Resolution

Trust Corporation (RTC). The following summarizes the condition of the DIF.

(See the accompanying tables on FDIC-Insured Deposits and Insurance Fund

Reserve Ratios below and on the following page.)

For the twelve months ending December, 31, 2007, DIF’s comprehensive

income totaled $2.2 billion compared to $1.6 billion for the previous year,

an increase of 38 percent. Excluding the recognition of exit fees earned of

$345 million (a one-time adjustment) from the 2006 results, comprehensive

income rose by $1.02 billion, or 84 percent, from a year ago. This year-overyear increase was primarily due to a $611 million increase in assessment

revenue, a $299 million increase in interest revenue, a $298 million decrease

in the unrealized loss on AFS securities, offset by a $42 million increase in

operating expenses and a $147 million increase in the provision for insurance

losses.

II. Financial Highlights

 4,000

 3,500

 3,000

 2,500

 2,000

 1,500

 1,000

 500

 0

1960 1970 1980 1990 2000

FDIC-DIF Insured Deposits (estimated 1960 -2007)●

D o l l a r s i n b i l l i o n s

2007

• All amounts are year-end except 2007 is at 9/30/0

 From 1989 through 2005, amounts represent the sum of separate Bank Insurance Fund and Savings Association Insurance Fund 

 amounts.

 Source: Commercial Bank Call Reports and Thrift Financial Reports.

$
33

The $611 million increase in assessment revenue resulted from significant

changes to the risk-based assessment system beginning in 2007. For 2007,

DIF recognized $643 million in assessment revenue representing $3.7 billion

in gross premiums due from insured depository institutions net of $3.1 billion in assessment credits used. Assessment revenue increased from $94

million in the first quarter to $245 million in the fourth quarter. The increased

revenue each quarter primarily resulted from a reduction in the assessment

credits used by financial institutions to offset gross assessments. This trend

toward higher assessment income is expected to continue as institutions

deplete their available credits. Of the $4.7 billion in one-time assessment

credits granted, $1.6 billion (34 percent) remained as of December 31, 2007.

1.45

1.40

1.35

1.30

1.25

1.20

1.15

1.00

 0

 3/04 6/   /04  12/3/0  605    9/5  12/ 3/0 6/0/06 1

Deposit Insurance Fund Reserve Ratios (Fund Balances as a Percent of Estimated Insured Deposits)

Prior to 2007, amounts represent the sum of separate Bank Insurance Fund and Savings Association Insurance Fund amounts.
3

A Continuing Record of Prudent Stewardship

The FDIC relies primarily upon interest earned on the investment of the

Deposit Insurance Fund for its operations. It is notable that the Corporation

has reduced its operational spending even as the interest earned on the

DIF (and its predecessor funds) has increased significantly. As a result, the

FDIC’s annual spending has dramatically declined as a percentage of interest

revenue on the DIF. The combined interest earned by the DIF and FRF grew

to $2,696 million in 2007 ($2,540 million for DIF and $156 million for FRF),

while combined operating and investment budget spending fell to 37.6 percent

of interest revenue, down from 49.4 percent in 2003.

2008 Corporate Operating Budget

Although its staffing realignment was essentially completed in 2006, the

FDIC will continue to emphasize control of spending in 2008 and future years.

In December 2007, the Board of Directors approved a 2008 Corporate

Operating Budget of approximately $1.142 billion, including $1.067 billion

for ongoing operations. The approved 2008 budget is 3.1 percent higher

than the 2007 Corporate Operating Budget. This limited budget increase

was required for negotiated employee pay increases and included funding

for a number of major new initiatives, including additional staff for risk

management and compliance examinations, as well as increased funding

for resolution preparedness. The Corporation realigned its spending priorities

$ Millions 

 3,000

 2,000

 1,000

 0

 2003 2004 200  20   2

 $2,095 2,148 2,440 2,392 2,696 

 $1,035 1,112 1,052 998 1,013 

 Total Interest Revenue vs. Operating and Investment Budget Spending

Total Interest Revenue (DIF + FRF)

Total Budget Spending
3

and reduced costs in other areas to address these priority initiatives while

limiting the size of the overall 2008 budget increase. In 2008 and future

years, the FDIC will continue to rigorously review its workload and staffing

and seek operational efficiencies through continuous improvement of its

business processes.

Investment Spending

The FDIC instituted a separate Investment Budget in 2003. It has a disciplined

process for reviewing proposed new investment projects and managing the

construction and implementation of approved projects. All 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. The project approval and monitoring

processes also enable the FDIC to be aware of risks to the major capital

investment projects and facilitate appropriate, timely intervention to address

these risks throughout the development process. An investment portfolio

performance review is provided to the FDIC’s Board of Directors quarterly.

The Corporation undertook significant capital investments during the 2003-

2007 period, including construction of a major expansion of its Virginia Square

facility and the implementation of 11 major new IT systems. Investment

spending totaled $234 million during this period, peaking at $108 million

in 2004. Spending for investment projects in 2007 totaled approximately

$12 million. In 2008, investment spending is estimated to total $17 million.

 

$ Millions

 120

 80

 40

 0

 2003 2004 200  20   2

 $ 27 108 62 25 12 

 

 Investment Spending 2003-2007

Investment Spending
3

III. 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

 Deposit Insurance Fund Balance Sheet at December 31, condensed 

 D o l l a r s i n T h o u s a n d s 

 2007 20

 Assets

 Cash and cash equivalents $ 4,244,547 $ 2,953,995

 Investment in U.S. Treasury obligations, net:

Held-to-maturity securities 38,015,174 37,184,214

Available-for-sale securities 8,572,800 8,958,566

 Assessments receivable, net 244,581 0

 Interest receivable on investments and other assets, net 768,292 747,715

 Receivables from resolutions, net 808,072 538,991

 Property and equipment, net 351,861 376,790

 Total Assets $ 53,005,327   50

 Liabilities 

 Accounts payable and other liabilities $ 151,857 $ 154,283

Postretirement benefit liability 116,158 129,906

 Contingent liabilities for: 

Anticipated failure of insured institutions 124,276 110,775

Litigation losses 200,000 200,000

 Total Liabilities 592,2

 

 Fund Balance

 Accumulated net income 52,034,503 49,929,226

 Unrealized gain on available-for-sale securities, net 358,908 233,822

 Unrealized postretirement benefit gain 19,625 2,259

 Total Fund Balance 52,413,036  

 Total Liabilities and Fund Balance $ 53,005,327   50
3

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

 Deposit Insurance Fund Statement of Income and Fund Balance for the Years Ended December 31, condensed 

 D o l l a r s i n T h o u s a n d s 

2007 20

Revenue

Interest on U.S. Treasury obligations $ 2,540,061 $ 2,240,723

 Assessments 642,928 31,945

 Exit fees earned 0 345,295

Other revenue 13,244 25,565

Total Revenue 3,196,233 2,

Expenses and Losses

 Operating expenses 992,570 950,618

 Provision for insurance losses 95,016 (52,097)

Insurance and other expenses 3,370 5,843

 Total Expenses and Losses 1,090,95

 Net Income 2,105,277

 Unrealized gain/(loss) on available-for-sale securities, net 125,086 (172,718)

 Unrealized postretirement benefit gain 17,366 2,259

 Comprehensive Income 2,247,729

 Fund Balance - Beginning 50,165,307

 Fund Balance - Ending $ 52,413,03$   5
3

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

 Deposit Insurance Fund Statement of Cash Flows for the Years Ended December 31, condensed 

 D o l l a r s i n T h o u s a n d s 

2007 20

Operating Activities

Net Income: $ 2,105,277 $ 1,739,164

Adjustments to reconcile net income to net cash provided by operating activities:

Amortization of U.S.Treasury obligations 571,267 599,274

Treasury inflation-protected securities (TIPS) inflation adjustment (313,836) (109,394)

Depreciation on property and equipment 63,115 52,919

Loss on retirement of property and equipment 153 0

Provision for insurance losses 95,016 (52,097)

Terminations/adjustments of work-in-process accounts 0 433

Exit fees earned 0 (345,295)

Unrealized gain on postretirement benefits 17,366 0

Change in Operating Assets and Liabilities:

Decrease in unamortized premium and discount of U.S. Treasury obligations (restricted) 0 1,359

(Increase) in assessments receivable, net (244,581) 0

(Increase) in interest receivable and other assets (20,442) (14,635)

(Increase) /Decrease in receivables from resolutions (350,309) 147,258

(Decrease) in accounts payable and other liabilities (39,580) (166,822)

(Decrease)/Increase in postretirement benefit liability (13,748) 129,906

Increase in exit fees and investment proceeds held in escrow 0 3,639

 Net Cash Provided by Operating Activities 1,869,

 Investing Activities

 Provided by:

Maturity of U.S. Treasury obligations, held-to-maturity 6,401,000 5,955,000

Maturity of U.S. Treasury obligations, available-for-sale 1,225,000 845,000 

 Used by:

Purchase of property and equipment (1,607) (11,721)

Purchase of U.S. Treasury obligations, held-to-maturity (7,706,117) (9,050,372)

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

 Net Cash Used by Investing Activities (579,146) (2,

Net Increase/(Decrease) in Cash and Cash Equivalents 1,290,552 (

 Cash and Cash Equivalents - Beginning 2,953,995 3,

 Cash and Cash Equivalents - Ending $ 4,244, $  
3

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

 FSLIC Resolution Fund Balance Sheet at December 31, condensed

 D o l l a r s i n T h o u s a n d s 

2007 20

Assets

 Cash and cash equivalents $ 3,617,133 $ 3,616,466

 Receivables from thrift resolutions and other assets, net 34,812 36,730

 Receivables from U.S. Treasury for goodwill judgments 35,350 251,827

 Total Assets $ 3,687,2     3,9

 Liabilities 

 Accounts payable and other liabilities $ 4,276 $ 5,497 

 Contingent liabilities for litigation losses and other 35,350 279,327

 Total Liabilities 39,626 2,

 Resolution Equity 

 Contributed capital 127,417,582 127,453,996

 Accumulated deficit (123,769,913) (123,833,797)

 Total Resolution Equity 3,647,669

 Total Liabilities and Resolution Equity $ 3,687,2     3,
4

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

 FSLIC Resolution Fund Statement of Income and Accumulated Deficit 

 for the Years Ended December 31, condensed

 D o l l a r s i n T h o u s a n d s 

2007 20

Revenue

 Interest on U.S. Treasury obligations $ 156,034 $ 151,648

 Other revenue 31,558 17,650

Total Revenue 187,5

 Expenses and Losses

 Operating expenses 3,364 12,002

 Provision for losses (10,135) (19,257)

 Goodwill/Guarini litigation expenses 195,939 411,056

 Recovery of tax benefits (68,217) (34,783)

Other expenses 2,757 2,783

 Total Expenses and Losses 123,708 

 Net Income/(Loss) 63,884 (202

Accumulated Deficit - Beginning (123,833,797) (12

Accumulated Deficit - Ending $ (123,769,9$     (1
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

 FSLIC Resolution Fund Statement of Cash Flows for the Years Ended December 31, condensed

 D o l l a r s i n T h o u s a n d s 

2007 20

 Operating Activities

 Net Income/(Loss) $ 63,884 $ (202,503)

Adjustments to reconcile net income/(loss) to net cash (used by) operating activities:

Provision for losses (10,135) (19,257)

 Change in Operating Assets and Liabilities:

Decrease in receivables from thrift resolutions and other assets 12,053 21,273

(Decrease) in accounts payable and other liabilities (1,221) (2,302)

(Decrease)/Increase in contingent liabilities for litigation losses and other (243,977) 21,824

 Net Cash Used by Operating Activities (179,396)

 Financing Activities

 Provided by:

U.S.Treasury payments for goodwill litigation 405,063 194,728

 Used by:

Payments to Resolution Funding Corporation (225,000) 0

Net Cash Provided by Financing Activities 180,063

 Net Increase in Cash and Cash Equivalents 67 

 Cash and Cash Equivalents - Beginning 3,616,466 3

 Cash and Cash Equivalents - Ending $ 3,617,13   
4

To the Board of Directors 

The Federal Deposit Insurance Corporation 

We audited the assets, liabilities, and fund balance as of December 31, 2007, and 2006, for the 

two funds (the Deposit Insurance Fund (DIF) and the FSLIC Resolution Fund (FRF)) administered 

by the Federal Deposit Insurance Corporation (FDIC), the related statements of income and fund 

balance (accumulated deficit), and the statements of cash flows for the years then ended. In our 

report dated February 4, 2008, we expressed an unqualified opinion on those statements. 

In that report, we stated that we found 

• the financial statements of each fund are 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 for each fund; and 

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

In addition, we referred the reader to note 6 in DIF’s financial statements that discussed increased 

challenges in 2007 faced by FDIC’s insured financial institutions. The downturn in housing markets 

led to asset-quality problems and volatility in financial markets, which hurt banking industry 

performance and threatened the viability of some institutions that had significant exposure to 

higher-risk residential mortgages. It is uncertain how long the effects of this downturn will last. 

In addition to a recorded estimated liability of $124 million as of December 31, 2007, for the 

anticipated failure of some DIF-insured institutions, FDIC has identified additional risk that 

could result in a further estimated loss to the DIF of $1.7 billion should potentially vulnerable 

insured institutions ultimately fail. FDIC continues to evaluate the risks to affected institutions 

in light of evolving economic conditions, but the impact of such risks on the DIF cannot be 

reasonably estimated at this time. Actual losses, if any, will largely depend on future economic 

and market conditions and could differ materially from FDIC’s estimates. 

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. 

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

standards. 

David M. Walker 

Comptroller General of the United States 

February 4, 2008 
4

Federal Deposit Insurance Corporation

550 17th Street,NW Washington, DC 20429 9990 

February 4, 2008

Mr. David M. Walker

Comptroller General of the United States

U.S. Government Accountability Office

441 G Street, NW

Washington, DC 20548

Re: FDIC Management Response on the GAO 2007 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’ 2007 and 2006 Financial Statements, GAO-08-416. The report presents GAO’s 

opinions on the calendar year 2007 and 2006 financial statements of the Deposit Insurance 

Fund (DIF) and the Federal Savings and Loan Insurance Corporation Resolution Fund (FRF). 

The report also presents GAO’s opinion on the effectiveness of the Federal Deposit Insurance 

Corporation’s (FDIC’s) internal control over financial reporting and compliance with laws and 

regulations for each of the funds as of December 31, 2007, and GAO’s evaluation of FDIC’s 

compliance with selected laws and regulations.

We are pleased that FDIC received unqualified opinions on its financial statements for the sixteenth 

consecutive year and that there were no material weaknesses or significant deficiencies identified 

during the 2007 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 for each fund; and there was no reportable noncompliance with laws and regulations 

that were tested.

We appreciate GAO’s recognition of our accomplishments during the 2007 audit year. As 

always, our management team is dedicated to promoting the highest standard of financial 

management, and we will work diligently to sustain that focus. Continued improvements 

in operations remain a priority for FDIC.

In addition, I want to recognize the GAO’s support throughout the audit and to acknowledge 

you and the GAO staff for your efforts and dedication in working with FDIC again this year 

to meet the accelerated reporting deadline for our audited financial statements. We look forward 

to continuing this productive and successful relationship in the coming year.

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 
FDIC Organization Chart/Officials as of December 31, 2007

Deputy to the Chairman 

and Chief Financial Officer

Steven O. App

Deputy to the Chairman

Alice C. Goodman

General Counsel

Sara A. Kelsey

Deputy to the Chairman 

and Chief Operating Officer

John F. Bovenzi

Division of Finance

Bret D. Edwards

Director

 

Division of Supervision 

and Consumer Protection

Sandra L. Thompson

Director

 

Division of Insurance 

and Research

Arthur J. Murton

Director 

Office of 

Legislative Affairs

Eric J. Spitler

Director 

Legal 

Division 

Sara A. Kelsey

General Counsel

Office of the 

Ombudsman

Cottrell L. Webster

Ombudsman

Office of Diversity and 

Economic Opportunity

D. Michael Collins

Director

Corporate 

University

Thom H. Terwilliger

Chief Learning Officer

Division of Information 

Technology

Michael E. Bartell

Director

Division of 

Administration

Arleas Upton Kea

Director

Division of Resolutions 

and Receiverships

Mitchell L. Glassman

Director

Office of International

Affairs

Fred S. Carns

Director

 

Office of Enterprise 

Risk Management

James H. Angel, Jr.

Director 

Chief of Staff

Jesse O. Villarreal, Jr.

 

Office of Public Affairs

Andrew Gray

Director 

Chief Information Officer 

and Chief Privacy Officer

Michael E. Bartell

 

Office of 

Inspector General

Jon T. Rymer

Inspector General

Vice Chairman

Martin J. Gruenberg

Board of Directors

Sheila C. Bair

Martin J. Gruenberg 

Thomas J. Curry

John C. Dugan 

John M. Reich

Office of the Chairman

Sheila C. Bair

Chairman

IV. Other Information 
Home Page on the Internet

www.fdic.gov

FDIC Call Center

Phone: 877-275-3342 

 (877-ASK FDIC)

 703-562-2222 

Hearing

Impaired: 800-925-4618

Public Information Center

3501 Fairfax Drive/Room E-1002

Arlington, VA 22226

Phone: 877-275-3342 

 (877-ASK FDIC), or

 703-562-2200 

Fax: 703-562-2296

E-mail: publicinfo@fdic.gov

Office of the Ombudsman

3501 Fairfax Drive/Room E-2022

Arlington, VA 22226

Phone: 877-275-3342 

 (877- ASK FDIC)

Fax: 703-562-6057

E-mail: ombudsman@fdic.gov

Sources of Information

A wide range of banking, consumer and financial information

is available on the FDIC’s Internet home page. This includes

the FDIC’s Electronic Deposit Insurance Estimator (EDIE),

which estimates an individual’s deposit insurance coverage;

the Institution Directory – financial profiles of FDIC-insured

institutions; Community Reinvestment Act evaluations

and ratings for institutions supervised by the FDIC; Call

Reports– banks’ reports of condition and income; and

Money Smart, a training program to help 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.

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 subjectmatter experts, responds to questions about deposit

insurance and other consumer issues and concerns, as

well as questions about FDIC programs and activities.

The Call Center also makes referrals to other federal and

state agencies as needed. Hours of operation are 8:00 a.m.

to 8:00 p.m. Eastern Time. Information is also available in

Spanish. Recorded information about deposit insurance

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

telephone number.

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.

The Office of the Ombudsman (OO) is an independent,

neutral and confidential resource and liaison for the

banking industry and the general public. The OO responds

to inquiries about the FDIC in a fair, impartial and timely

manner. It researches questions and complaints primarily

from bankers. The OO also recommends ways to improve

FDIC operations, regulations and customer service.
Memphis Area Office

	 5100 Poplar Avenue

	 Suite 1900

	 Memphis, Tennessee 38137

	 (901) 685-1603

Arkansas 

Louisiana 

Mississippi

Tennessee

Regional and Area Offices

 Atlanta Regional Office

	 10 Tenth Street, NE

	 Suite 800

	 Atlanta, Georgia 30309

	 (678) 916-2200

Alabama Virginia

Florida West Virginia

Georgia

North Carolina

South Carolina

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500 West Monroe Street

	 Suite 3500

	 Chicago, Illinois 60661

	 (312) 382-7500

Illinois Wisconsin

Indiana 

Kentucky

Michigan 

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Dallas Regional Office

	 1601 Bryan Street

	 Dallas, Texas 75201

	 (214 ) 754-0098

Colorado

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Texas

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	 2345 Grand Boulevard

	 Suite 1200

	 Kansas City, Missouri 64108

	 (816) 234-8000

Iowa North Dakota

Kansas South Dakota

Minnesota 

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New York Regional Office

	 20 Exchange Place

	 4th Floor

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	 (917) 320-2500

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Boston Area Office

	 15 Braintree Hill Office Park

	 Suite 100

	 Braintree, Massachusetts 02184

	 (781) 794-5500

Connecticut

Maine

Massachusetts 

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San Francisco Regional Office

	 25 Ecker Street

	 Suite 2300

	 San Francisco, California 94105

	 (415) 546-0160

Alaska Montana

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