FINANCIAL STATEMENTS AND NOTES 73

4 Financial Statements 

and Notes
74 FINANCIAL STATEMENTS AND NOTES

Deposit Insurance Fund

Federal Deposit Insurance Corporation

Deposit Insurance Fund Balance Sheet at December 31

Dollars in Thousands

2010 2009

Assets

Cash and cash equivalents $27,076,606 $54,092,423 

Cash and investments - restricted - systemic risk (Note 16)

(Includes cash/cash equivalents of $5,030,369 at December 31, 2010 

and $6,430,589 at December 31, 2009)

6,646,968 6,430,589 

Investment in U.S. Treasury obligations, net (Note 3) 12,371,268 5,486,799 

Assessments receivable, net (Note 9) 217,893 280,510 

Receivables and other assets - systemic risk (Note 16) 2,269,422 3,298,819 

Trust preferred securities (Note 5) 2,297,818 1,961,824 

Interest receivable on investments and other assets, net 259,683 220,588 

Receivables from resolutions, net (Note 4) 29,532,545 38,408,622 

Property and equipment, net (Note 6) 416,065 388,817 

Total Assets $81,088,268 $110,568,991 

Liabilities

Accounts payable and other liabilities $514,287 $273,338 

Unearned revenue - prepaid assessments (Note 9) 30,057,033 42,727,101 

Liabilities due to resolutions (Note 7) 30,511,877 34,711,726 

Deferred revenue - systemic risk (Note 16) 9,054,541 7,847,447 

Postretirement benefit liability (Note 13) 165,874 144,952 

Contingent liabilities for: 

 Anticipated failure of insured institutions (Note 8) 17,687,569 44,014,258 

 Systemic risk (Note 16) 149,327 1,411,966 

 Litigation losses (Note 8) 300,000 300,000 

Total Liabilities 88,440,508 131,430,788 

Commitments and off-balance-sheet exposure (Note 14)

Fund Balance

Accumulated Net Loss (7,696,428) (21,001,312)

Unrealized Gain on U.S. Treasury investments, net (Note 3) 26,698 142,127 

Unrealized postretirement benefit Loss (Note 13) (18,503) (2,612)

Unrealized Gain on trust preferred securities (Note 5) 335,993 0 

Total Fund Balance (7,352,240) (20,861,797)

Total Liabilities and Fund Balance $81,088,268 $110,568,991 

The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS AND NOTES 75

Deposit Insurance Fund

Federal Deposit Insurance Corporation

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

Dollars in Thousands

2010 2009

Revenue

Interest on U.S. Treasury obligations $204,871 $704,464 

Assessments (Note 9) 13,610,436 17,717,374 

Systemic risk revenue (Note 16) (672,818) 1,721,626 

Realized gain on sale of securities 0 1,389,285 

Other revenue (Note 10) 237,425 3,173,611 

Total Revenue 13,379,914 24,706,360 

Expenses and Losses

Operating expenses (Note 11) 1,592,641 1,271,099 

Systemic risk expenses (Note 16) (672,818) 1,721,626 

Provision for insurance losses (Note 12) (847,843) 57,711,772 

Insurance and other expenses 3,050 4,447 

Total Expenses and Losses 75,030 60,708,944 

Net Income (Loss) 13,304,884 (36,002,584)

Unrealized Loss on U.S. Treasury investments, net (115,429) (2,107,925)

Unrealized postretirement benefit Loss (Note 13) (15,891) (27,577)

Unrealized Gain on trust preferred securities (Note 5) 335,993 0 

Comprehensive Income (Loss) 13,509,557 (38,138,086)

Fund Balance - Beginning (20,861,797) 17,276,289 

Fund Balance - Ending $(7,352,240) $(20,861,797)

The accompanying notes are an integral part of these financial statements.
76 FINANCIAL STATEMENTS AND NOTES

Deposit Insurance Fund

Federal Deposit Insurance Corporation

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

Dollars in Thousands

2010 2009

Operating Activities

Net Income (Loss): $13,304,884 $(36,002,584)

Adjustments to reconcile net income to net cash (used by) 

 provided by operating activities:

Amortization of U.S. Treasury obligations (5,149) 210,905 

Treasury inflation-protected securities inflation adjustment (23,051) 10,837 

Gain on sale of U.S. Treasury obligations 0 (1,389,285)

Depreciation on property and equipment 68,790 70,488 

Loss on retirement of property and equipment 620 924 

Provision for insurance losses (847,843) 57,711,772 

Unrealized Loss on postretirement benefits (15,891) (27,577)

Guarantee termination fee from Citigroup 0 (1,961,824)

Change In Operating Assets and Liabilities:

Decrease in assessments receivable, net 62,617 737,976 

(Increase) Decrease in interest receivable and other assets (34,194) 192,750 

(Increase) in receivables from resolutions (16,607,671) (60,229,760)

Decrease (Increase) in receivable - systemic risk 1,029,397 (2,160,688)

Increase in accounts payable and other liabilities 240,949 140,740 

Increase in postretirement benefit liability 20,922 30,828 

(Decrease) in contingent liabilities - systemic risk (1,262,639) (25,672)

(Decrease) Increase in liabilities due to resolutions (4,199,849) 29,987,265 

(Decrease) Increase in unearned revenue - prepaid assessments (12,670,068) 42,727,101 

Increase in deferred revenue - systemic risk 1,203,936 5,769,567 

Net Cash (Used by) Provided by Operating Activities (19,734,240) 35,793,763 

Investing Activities Provided by:

Maturity of U.S. Treasury obligations 21,558,000 6,382,027 

Sale of U.S. Treasury obligations 0 15,049,873 

Investing Activities Used by:

Purchase of property and equipment (96,659) (91,468)

Purchase of U.S. Treasury obligations (30,143,138) 0 

Net Cash (Used by) Provided by Investing Activities (8,681,797) 21,340,432 

Net (Decrease) Increase in Cash and Cash Equivalents (28,416,037) 57,134,195 

Cash and Cash Equivalents - Beginning 60,523,012 3,388,817 

 Unrestricted Cash and Cash Equivalents - Ending 27,076,606 54,092,423 

 Restricted Cash and Cash Equivalents - Ending 5,030,369 6,430,589 

Cash and Cash Equivalents - Ending $32,106,975 $60,523,012 

The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS AND NOTES 77

Notes to the Financial Statements

Deposit Insurance Fund

December 31, 2010 and 2009 

1. Legislation and 

Operations of the 

Deposit Insurance Fund

Overview

The Federal Deposit Insurance Corporation 

(FDIC) is the independent deposit insurance 

agency created by Congress in 1933 to maintain 

stability and public confidence in the nation’s 

banking system. Provisions that govern the 

operations of the FDIC are generally found in 

the Federal Deposit Insurance (FDI) Act, as 

amended (12 U.S.C. 1811, et seq). In carrying 

out the purposes of the FDI Act, as amended, the 

FDIC insures the deposits of banks and savings 

associations (insured depository institutions), 

and in cooperation with other federal and state 

agencies promotes the safety and soundness of 

insured depository institutions by identifying, 

monitoring and addressing risks to the Deposit 

Insurance Fund (DIF). An active institution’s 

primary federal supervisor is generally determined 

by the institution’s charter type. Commercial and 

savings banks are supervised by either the FDIC, 

the Office of the Comptroller of the Currency, 

or the Federal Reserve Board, while savings 

associations (known as “thrifts”) are supervised 

by the Office of Thrift Supervision (OTS). (See 

“Recent Legislation” below for certain OTS 

functional responsibilities to be transferred to the 

FDIC in the future.) 

The FDIC is the administrator of the DIF and is 

responsible for protecting insured bank and thrift 

depositors from loss due to institution failures. 

The FDIC is required by 12 U.S.C. 1823(c) 

to resolve troubled institutions in a manner 

that will result in the least possible cost to DIF 

unless a systemic risk determination is made that 

compliance with the least-cost test would have 

serious adverse effects on economic conditions 

or financial stability and any action or assistance 

taken under the systemic risk determination 

would avoid or mitigate such adverse effects. A 

systemic risk determination under this statutory 

provision can only be invoked by the Secretary of 

the Treasury, in consultation with the President, 

and upon the written recommendation of twothirds of both the FDIC Board of Directors and 

the Board of Governors of the Federal Reserve 

System. Until passage of recent legislation (see 

“Recent Legislation” below), a systemic risk 

determination could permit open bank assistance. 

As explained below, such open bank assistance is 

no longer available. The systemic risk provision 

requires the FDIC to recover any related losses to 

the DIF through one or more special assessments 

from all insured depository institutions and, with 

the concurrence of the Secretary of the Treasury, 

depository institution holding companies (see 

Note 16).

The FDIC is also the administrator of the FSLIC 

Resolution Fund (FRF). The FRF is a resolution 

fund responsible for the sale of remaining assets 

and satisfaction of liabilities associated with 

the former Federal Savings and Loan Insurance 

Corporation (FSLIC) and the former Resolution 

Trust Corporation. The DIF and the FRF are 

maintained separately to fund their respective 

mandates of the FDIC.

Pursuant to the enactment of the Dodd-Frank 

Wall Street Reform and Consumer Protection Act 

(Dodd-Frank Act) on July 21, 2010 (see “Recent 

Legislation” below), the FDIC is the manager of 

the Orderly Liquidation Fund (OLF). Established 

as a separate fund in the U.S. Treasury (Treasury), 

the OLF is inactive and unfunded until the FDIC 

is appointed as receiver for a covered financial 

company (a failing financial company, such as 

a bank holding company or nonbank financial 

company for which a systemic risk determination 

has been made as set forth in section 203 of 

the Dodd-Frank Act). At the commencement 

of an orderly liquidation of a covered financial 

company, the FDIC may borrow funds required 

by the receivership from the Treasury, up to 

the Maximum Obligation Limitation for each 

covered financial company and in accordance 

with an Orderly Liquidation and Repayment 

Plan. Borrowings will be deposited in the OLF 

and repaid to the Treasury with the proceeds 
78 FINANCIAL STATEMENTS AND NOTES

of asset sales. If such proceeds are insufficient, 

any remaining shortfall must be recovered from 

assessments imposed on financial companies as 

specified in the Dodd-Frank Act.

Recent Legislation

The Dodd-Frank Act (Public Law 111-203) 

provides comprehensive reform of the supervision 

and regulation of the financial services industry. 

Under this legislation, the FDIC’s new 

responsibilities include: 1) broad authority to 

liquidate failing systemic financial firms in an 

orderly manner as manager of the newly created 

OLF; 2) issuing regulations, jointly with the 

Federal Reserve Board (FRB), requiring that 

nonbank financial companies supervised by the 

FRB and bank holding companies with assets 

equal to or exceeding $50 billion provide the FRB, 

the FDIC, and the Financial Stability Oversight 

Council (FSOC) a plan for their rapid and orderly 

resolution in the event of material financial 

distress or failure; 3) serving as a voting member 

of the FSOC; 4) back-up examination authority 

for nonbank financial companies supervised by 

the FRB and bank holding companies with at 

least $50 billion in assets; 5) back-up enforcement 

actions against depository institution holding 

companies if their conduct or threatened conduct 

poses a risk of loss to the DIF; and 6) federal 

oversight of state-chartered thrifts upon the 

transfer of such authority from OTS (between 

12 and 18 months after enactment of the DoddFrank Act, currently set for July 21, 2011). 

The Dodd-Frank Act limits the systemic risk 

determination authority under 12 U.S.C. 

1823(c) to DIF-insured depository institutions 

for which the FDIC has been appointed receiver 

and requires that any action taken or assistance 

provided under this authority must be for the 

purpose of winding up the insured depository 

institution in receivership. Under Title XI of 

the Act, the FDIC is granted new authority to 

establish a widely available program to guarantee 

obligations of solvent insured depository 

institutions or solvent depository institution 

holding companies (including affiliates) upon 

systemic determination of a liquidity event during 

times of severe economic distress. This program 

would not be DIF-funded; it would be funded 

by fees and assessments paid by all participants in 

the program. If fees are insufficient to cover losses 

or expenses, the FDIC must impose a special 

assessment on participants as necessary to cover 

the insufficiency. Any excess funds at the end of 

the liquidity event program would be deposited in 

the General Fund of the Treasury. 

The new law also makes changes related 

to the FDIC’s deposit insurance mandate. 

These changes include a permanent increase 

in the standard deposit insurance amount to 

$250,000 (retroactive to January 1, 2008) and 

unlimited deposit insurance coverage for noninterest bearing transaction accounts for two 

years, from December 31, 2010 to the end of 

2012. Additionally, the legislation changes the 

assessment base (from a deposits-based formula to 

one based on assets) and establishes new reserve 

ratio requirements (see Note 9). 

Operations of the DIF

The primary purposes of the DIF are to: 1) 

insure the deposits and protect the depositors 

of DIF-insured institutions and 2) resolve failed 

DIF-insured institutions upon appointment of 

the FDIC as receiver, in a manner that will result 

in the least possible cost to the DIF (unless a 

systemic risk determination is made). 

The DIF is primarily funded from deposit 

insurance assessments. Other available funding 

sources, if necessary, are borrowings from the 

Treasury, the Federal Financing Bank (FFB), 

Federal Home Loan Banks, and insured 

depository institutions. The FDIC has borrowing 

authority of $100 billion from the Treasury and 

a Note Purchase Agreement with the FFB not to 

exceed $100 billion to enhance the DIF’s ability to 

fund deposit insurance obligations. 
FINANCIAL STATEMENTS AND NOTES 79

A statutory formula, known as the Maximum 

Obligation Limitation (MOL), limits the amount 

of obligations the DIF can incur to the sum of its 

cash, 90 percent of the fair market value of other 

assets, and the amount authorized to be borrowed 

from the Treasury. The MOL for the DIF was 

$106.3 billion and $118.2 billion as of December 

31, 2010 and 2009, respectively. 

Operations of Resolution Entities

The FDIC is responsible for managing and 

disposing of the assets of failed institutions in 

an orderly and efficient manner. The assets held 

by receiverships, pass-through conservatorships 

and bridge institutions (collectively, resolution 

entities), and the claims against them, are 

accounted for separately from DIF assets and 

liabilities to ensure that proceeds from these 

entities are distributed in accordance with 

applicable laws and regulations. Accordingly, 

income and expenses attributable to resolution 

entities are accounted for as transactions of those 

entities. Resolution entities are billed by the FDIC 

for services provided on their behalf.

2. Summary of Significant 

Accounting Policies

General

These financial statements pertain to the financial 

position, results of operations, and cash flows of 

the DIF and are presented in conformity with 

U.S. generally accepted accounting principles 

(GAAP). As permitted by the Federal Accounting 

Standards Advisory Board’s Statement of Federal 

Financial Accounting Standards 34, The Hierarchy 

of Generally Accepted Accounting Principles, 

Including the Application of Standards Issued by 

the Financial Accounting Standards Board, the 

FDIC prepares financial statements in conformity 

with standards promulgated by the Financial 

Accounting Standards Board (FASB). These 

statements do not include reporting for assets 

and liabilities of resolution entities because these 

entities are legally separate and distinct, and the 

DIF does not have any ownership interests in 

them. Periodic and final accountability reports 

of resolution entities are furnished to courts, 

supervisory authorities, and others upon request.

Use of Estimates

Management makes estimates and assumptions 

that affect the amounts reported in the financial 

statements and accompanying notes. Actual 

results could differ from these estimates. Where 

it is reasonably possible that changes in estimates 

will cause a material change in the financial 

statements in the near term, the nature and extent 

of such changes in estimates have been disclosed. 

The more significant estimates include the 

assessments receivable and associated revenue; the 

allowance for loss on receivables from resolutions 

(including loss-share agreements); liabilities 

due to resolutions; the estimated losses for 

anticipated failures, litigation, and representations 

and warranties; guarantee obligations for the 

Temporary Liquidity Guarantee Program and 

structured transactions; the valuation of trust 

preferred securities; and the postretirement benefit 

obligation. 

Cash Equivalents

Cash equivalents are short-term, highly liquid 

investments consisting primarily of U.S. Treasury 

Overnight Certificates. 

Investment in U.S. 

Treasury Obligations

DIF funds are required to be invested in 

obligations of the United States or in obligations 

guaranteed as to principal and interest by the 

United States. The Secretary of the Treasury must 

approve all such investments in excess of $100,000 

and has granted the FDIC approval to invest DIF 

funds only in U.S. Treasury obligations that are 

purchased or sold exclusively through the Bureau 

of the Public Debt’s Government Account Series 

(GAS) program.
80 FINANCIAL STATEMENTS AND NOTES

The DIF’s investments in U.S. Treasury 

obligations are classified as available-for-sale. 

Securities designated as available-for-sale are 

shown at fair value. Unrealized gains and losses are 

reported as other comprehensive income. Realized 

gains and losses are included in the Statement 

of Income and Fund Balance as components of 

net income. Income on securities is calculated 

and recorded on a daily basis using the effective 

interest or straight-line method depending on the 

maturity of the security. 

Revenue Recognition for 

Assessments

Assessment revenue is recognized for the 

quarterly period of insurance coverage based 

on an estimate. The estimate is derived from 

an institution’s risk-based assessment rate and 

assessment base for the prior quarter adjusted for 

the current quarter’s available assessment credits, 

any changes in supervisory examination and 

debt issuer ratings for larger institutions, and a 

modest deposit insurance growth factor. At the 

subsequent quarter-end, the estimated revenue 

amounts are adjusted when actual assessments 

for the covered period are determined for each 

institution. (See Note 9 for additional information 

on assessments.) 

Capital Assets and Depreciation

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

Leasehold improvements are capitalized and 

depreciated over the lesser of the remaining life 

of the lease or the estimated useful life of the 

improvements, if determined to be material. 

Capital assets depreciated on a straight-line basis 

over a five-year estimated useful life include 

mainframe equipment; furniture, fixtures, and 

general equipment; and internal-use software. 

Personal computer equipment is depreciated on 

a straight-line basis over a three-year estimated 

useful life.

Related Parties

The nature of related parties and a description of 

related-party transactions are discussed in Note 1 

and disclosed throughout the financial statements 

and footnotes.

Disclosure about Recent Relevant 

Accounting Pronouncements

Q Accounting Standards Update (ASU) No. 

2009-17, Improvements to Financial Reporting 

by Enterprises Involved with Variable Interest 

Entities, modified Accounting Standards 

Codification (ASC) Topic 810, Consolidation, 

to incorporate the provisions of former 

Statement of Financial Accounting Standards 

(SFAS) No. 167, Amendments to FASB 

Interpretation No. 46(R), effective for reporting 

periods beginning after November 15, 2009. 

The provisions of ASC 810 require that an 

enterprise make qualitative assessments of 

its relationship with a variable interest entity 

(VIE) based on the enterprise’s 1) power to 

direct the activities that most significantly 

impact the economic performance of the 

VIE and 2) obligation to absorb losses of 

the VIE or the right to receive benefits 

from the VIE that could potentially be 

significant to the VIE. If the relationship 

causes the variable interest holder to have 

both of these characteristics, the enterprise is 

considered the primary beneficiary and must 

consolidate the VIE. During 2010, selected 

FDIC receiverships engaged in structured 

transactions, some of which resulted in 

the issuance of note obligations that were 

guaranteed by the FDIC in its corporate 

capacity (see Note 8). In accordance with 

the provisions of ASC 810, an analysis of 

each structured transaction was performed 

to determine whether the terms of the legal 

agreements extended rights that would cause 

the FDIC in its corporate capacity to be 

characterized as the primary beneficiary. The 

conclusion of these analyses was that the 
FINANCIAL STATEMENTS AND NOTES 81

FDIC in its corporate capacity did not have 

the power to direct the significant activities 

of any entity with which it was involved at 

December 31, 2010 and therefore, there is 

no current consolidation requirement for the 

DIF 2010 financial statements. In making 

that determination, consideration was given to 

which, if any, activities were significant to each 

VIE. Often, the right to service collateral, to 

liquidate collateral or to unilaterally dissolve 

the LLC or trust was determined to be the 

most significant activity. In other cases, it 

was determined that there were no significant 

ongoing activities and that the design of the 

entity was the best indicator of which party 

was the primary beneficiary. The results of 

each analysis identified a party other than the 

FDIC in its corporate capacity as the primary 

beneficiary. In the future, the FDIC in its 

corporate capacity may become the primary 

beneficiary upon the activation of provisional 

contract rights that extend to the corporation 

if payments are made on guarantee claims. 

Ongoing analyses will be required in order to 

monitor implications for ASC 810 provisions. 

Q ASU No. 2009-16, Accounting for Transfers 

of Financial Assets modified ASC Topic 

860, Transfers and Servicing, to incorporate 

the provisions of former SFAS No. 166, 

Accounting for Transfers of Financial Assets, 

an amendment of FASB Statement No. 140, 

effective for reporting periods beginning after 

November 15, 2009. The provisions of ASC 

860 remove the concept of a qualifying special 

purpose entity, change the requirements for 

derecognizing financial assets and require 

additional disclosures about a transferor’s 

continuing involvement with transferred 

assets. The DIF has not engaged in any 

transfers of financial assets or financial 

liabilities; thus, there is no current impact to 

these financial statements for 2010. 

Q ASU No. 2010-06, Fair Value Measurements 

and Disclosures (Topic 820) – Improving 

Disclosures about Fair Value Measurements, 

requires enhanced disclosures for significant 

transfers into and out of Level 1 (measured 

using quoted prices in active markets) and 

Level 2 (measured using other observable 

inputs) of the fair value measurement 

hierarchy. These disclosures are effective 

for interim and annual reporting periods 

beginning after December 15, 2009. The 

required disclosures are included in Note 15. 

Separate disclosure of the gross purchases, 

sales, issuances, and settlements activity for 

Level 3 (measured using unobservable inputs) 

fair value measurements will become effective 

for fiscal years beginning after December 15, 

2010. Currently, the additional disclosures are 

not expected to impact the DIF.

Other recent accounting pronouncements have 

been deemed to be not applicable or material to 

the financial statements as presented.

3. Investment in U.S. 

Treasury Obligations, Net

As of December 31, 2010 and 2009, investments 

in U.S. Treasury obligations, net, were $12.4 

billion and $5.5 billion, respectively. As of 

December 31, 2010 and 2009, the DIF held $2.0 

billion and $2.1 billion, respectively, of Treasury 

Inflation-Protected Securities (TIPS). These 

securities are indexed to increases or decreases 

in the Consumer Price Index for All Urban 

Consumers (CPI-U).
82 FINANCIAL STATEMENTS AND NOTES

Total Investment in U.S. Treasury Obligations, Net at December 31, 2010

Dollars in Thousands

Maturity

Yield at 

Purchase (a) Face Value

Net Carrying 

Amount

Unrealized 

Holding Gains

Unrealized 

Holding 

Losses Fair Value

U.S. Treasury notes and bonds

Within 1 year 0.73% $3,000,000 $3,052,503 $2,048 $(31) $3,054,520 

U.S. Treasury Inflation-Protected Securities

Within 1 year 3.47% 1,375,955 1,375,967 1,391 0 1,377,358 

After 1 year 

through 5 years 2.41% 615,840 621,412 22,381 0 643,793 

U.S. Treasury bills

Within 1 year 0.19% 7,300,000 7,294,688 909 0 7,295,597 

Total $12,291,795 $12,344,570 $26,729 $(31) $12,371,268 

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

yields on TIPS include a long-term annual inflation assumption as measured by the CPI-U. The long-term CPI-U 

consensus forecast is 1.8 percent, based on figures issued by the Congressional Budget Office and Blue Chip Economic 

Indicators in early 2010.

Total Investment in U.S. Treasury Obligations, Net at December 31, 2009

Dollars in Thousands

Maturity

Yield at 

Purchase (a) Face Value

Net Carrying 

Amount

Unrealized 

Holding Gains

Unrealized 

Holding 

Losses Fair Value

U.S. Treasury notes and bonds

Within 1 year 5.04% $3,058,000 $3,062,038 $48,602 $0 $3,110,640 

After 1 year 

through 5 years 4.15% 300,000 302,755 11,648 0 314,403 

U.S. Treasury Inflation-Protected Securities

After 1 year 

through 5 years 3.14% 1,968,744 1,979,879 81,877 0 2,061,756 

Total $5,326,744 $5,344,672 $142,127 $0 $5,486,799 

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

yields on TIPS include a long-term annual inflation assumption as measured by the CPI-U. The long-term CPI-U 

consensus forecast is 1.1 percent, based on figures issued by the Congressional Budget Office and Blue Chip Economic 

Indicators in early 2009.
FINANCIAL STATEMENTS AND NOTES 83

4. Receivables from

Resolutions, Net

Receivables from Resolutions, Net at December 31 

Dollars in Thousands

2010 2009

Receivables 

from closed 

banks $115,896,763 $98,647,508 

Allowance

for losses (86,364,218) (60,238,886) 

Total $29,532,545 $38,408,622 

The receivables from resolutions include payments 

made by the DIF to cover obligations to insured 

depositors (subrogated claims), advances to 

resolution entities for working capital, and 

administrative expenses paid on behalf of 

resolution entities. Any related allowance for 

loss represents the difference between the funds 

advanced and/or obligations incurred and the 

expected repayment. Estimated future payments 

on losses incurred on assets sold to an acquiring 

institution under a loss-share agreement are 

factored into the computation of the expected 

repayment. Assets held by DIF resolution entities 

(including structured transaction-related assets; see 

Note 8) are the main source of repayment of the 

DIF’s receivables from resolutions. 

As of December 31, 2010, there were 336 active 

receiverships which include 157 established in 

2010. As of December 31, 2010 and 2009, DIF 

resolution entities held assets with a book value 

of $49.9 billion and $49.3 billion, respectively 

(including cash, investments, and miscellaneous 

receivables of $22.9 billion and $7.7 billion, 

respectively). Ninety-nine percent of the current 

asset book value of $49.9 billion are held by 

resolution entities established since 2008.

Estimated cash recoveries from the management 

and disposition of assets that are used to 

determine the allowance for losses were based 

on asset recovery rates from several sources 

including: actual or pending institution-specific 

asset disposition data, failed institution-specific 

asset valuation data, aggregate asset valuation data 

on several recently failed or troubled institutions, 

sampled asset valuation data, and empirical asset 

recovery data based on failures as far back as 1990. 

Methodologies for determining the asset recovery 

rates incorporate estimating future cash recoveries, 

net of applicable liquidation cost estimates, and 

discounting based on market-based risk factors 

applicable to a given asset’s type and quality. The 

resulting estimated cash recoveries are then used 

to derive the allowance for loss on the receivables 

from these resolutions.

For failed institutions resolved using a whole 

bank purchase and assumption transaction with 

an accompanying loss-share agreement, the 

projected future loss-share payments, recoveries, 

and monitoring costs on the covered assets sold 

to the acquiring institution under the agreement 

are considered in determining the allowance for 

loss on the receivables from these resolutions. 

The loss-share cost projections are based on the 

covered assets’ intrinsic value which is determined 

using financial models that consider the quality 

and type of covered assets, current and future 

market conditions, risk factors and estimated 

asset holding periods. For year-end 2010 financial 

reporting, the loss-share cost estimates were 

updated for the majority (62% or 137) of the 222 

active loss-share agreements; the remaining 85 

were already based on recent loss estimates. The 

updated loss projections for the larger loss-share 

agreements were primarily based on new thirdparty valuations estimating the cumulative loss of 

loss-share covered assets. For the smaller loss-share 

agreements, the loss projections were based on a 

financial model that applies recent aggregate asset 

valuation recovery rates against current loss-share 

covered asset balances. 

Note that estimated asset recoveries are regularly 

evaluated during the year, but remain subject 

to uncertainties because of potential changes in 

economic and market conditions. Continuing 

economic uncertainties could cause the DIF’s 

actual recoveries to vary significantly from current 

estimates. 
84 FINANCIAL STATEMENTS AND NOTES

Whole Bank Purchase and 

Assumption Transactions with 

Loss-Share Agreements 

Since the beginning of 2008, the FDIC resolved 

223 failures using a Whole Bank Purchase and 

Assumption resolution transaction with an 

accompanying loss-share agreement on assets 

purchased by the financial institution acquirer. 

The acquirer typically assumes all of the deposits 

and purchases essentially all of the assets of a 

failed institution. The majority of the commercial 

and residential loan assets are purchased under a 

loss-share agreement, where the FDIC agrees to 

share in future losses and recoveries experienced 

by the acquirer on those assets covered under the 

agreement. Loss-share agreements are used by 

the FDIC to keep assets in the private sector and 

minimize disruptions to loan customers.

Losses on the covered assets are shared between 

the acquirer and the FDIC in its capacity as 

receiver of the failed institution when losses occur 

through the sale, foreclosure, loan modification, 

or write-down of loans in accordance with the 

terms of the loss-share agreement. The majority 

of the agreements cover a five- to 10-year period 

with the receiver covering 80 percent of the losses 

incurred by the acquirer up to a stated threshold 

amount (which varies by agreement) and the 

acquiring bank covering 20 percent. Typically, any 

losses above the stated threshold amount will be 

reimbursed by the receiver at 95 percent of the 

losses booked by the acquirer. (For agreements 

executed after March 26, 2010, the threshold 

was eliminated and generally 80% of all losses are 

covered by the receiver.) As mentioned above, the 

estimated loss-share liability is accounted for by 

the receiver and is included in the calculation of 

the DIF’s allowance for loss against the corporate 

receivable from the resolution. As loss-share claims 

are asserted and proven, DIF receiverships will 

satisfy these loss-share payments using available 

liquidation funds and/or by drawing on amounts 

due from the DIF for funding the deposits 

assumed by the acquirer (see Note 7). 

Through December 31, 2010, DIF receiverships 

are estimated to pay approximately $38.8 billion 

over the duration of these loss-share agreements 

on approximately $193.0 billion in total covered 

assets at the inception date of these agreements. 

To date, 158 receiverships have made loss-share 

payments totaling $8.3 billion.

Concentration of Credit Risk

Financial instruments that potentially subject the 

DIF to concentrations of credit risk are receivables 

from resolutions. The repayment of DIF’s 

receivables from resolutions is primarily influenced 

by recoveries on assets held by DIF receiverships 

and payments on the covered assets under losssharing agreements. The majority of the $184.4 

billion in remaining assets in liquidation ($27.0 

billion) and current loss-share covered assets 

($157.4 billion) are concentrated in commercial 

loans ($104.4 billion), residential loans ($56.3 

billion), and structured transaction-related assets 

as described in Note 8 ($12.8 billion). Most of the 

assets in these asset types originated from failed 

institutions located in California ($53.4 billion), 

Florida ($20.8 billion), Illinois ($15.7 billion), 

Puerto Rico ($15.3 billion), and Alabama 

($14.6 billion).

5. Trust Preferred Securities

On January 15, 2009, subject to a systemic risk 

determination, the Treasury, the FDIC and the 

Federal Reserve Bank of New York executed 

terms of a guarantee agreement with Citigroup to 

provide loss protection on a pool of approximately 

$301.0 billion of assets that remained on the 

balance sheet of Citigroup. 

In consideration for its portion of the loss-share 

guarantee at inception, the FDIC received $3.025 

billion of Citigroup’s preferred stock (Series G). 

On July 30, 2009, all shares of preferred stock 

initially received were exchanged for 3,025,000 

Citigroup Capital XXXIII trust preferred securities 

(TruPs) with a liquidation amount of $1,000 per 

security and a distribution rate of 8 percent per 

annum payable quarterly. The principal amount 
FINANCIAL STATEMENTS AND NOTES 85

is due in 2039. The Treasury initially received 

$4.034 billion in preferred stock for its loss-share 

protection and received an equivalent, aggregate 

amount of $4.034 billion in trust preferred 

securities at the time of the exchange for TruPs. 

On December 23, 2009, Citigroup terminated 

the loss-share agreement citing improvements in 

its financial condition and in financial market 

stability. The FDIC incurred no loss from the 

guarantee prior to termination of the agreement. 

In connection with the early termination of the 

guarantee program, the Treasury and the FDIC 

agreed that Citigroup would reduce the combined 

$7.1 billion liquidation amount of the TruPs by 

$1.8 billion. Pursuant to an agreement between 

the Treasury and the FDIC, TruPs held by the 

Treasury were reduced by $1.8 billion and the 

FDIC initially retained all of its TruPs holdings 

of $3.025 billion. The FDIC will transfer an 

aggregate liquidation amount of $800 million in 

TruPs to the Treasury, plus any related interest, 

less any payments made or required to be made 

by the FDIC for guaranteed debt instruments 

issued by Citigroup or any of its affiliates under 

the Temporary Liquidity Guarantee Program 

(TLGP; see Note 16). This transfer will occur 

within five days of the date on which no Citigroup 

debt remains outstanding under the TLGP. The 

fair value of these TruPs and related interest are 

recorded as systemic risk assets as described in 

Note 16.

The remaining $2.225 billion (liquidation 

amount) of TruPs held by the FDIC is classified 

as available-for-sale debt securities in accordance 

with FASB ASC Topic 320, Investments – Debt 

and Equity Securities. Upon termination of 

the guarantee agreement, the DIF recognized 

revenue in 2009 of $1.962 billion for the fair 

value of the TruPs (see Note 10). At December 

31, 2010, the fair value of the TruPs was $2.298 

billion (see Note 15). An unrealized holding gain 

of $336 million in 2010 is included in other 

comprehensive income.

6. Property and

Equipment, Net

Property and Equipment, Net at December 31

Dollars in Thousands

2010 2009

Land $37,352 $37,352 

Buildings 

(including leasehold 

improvements) 312,173 295,265 

Application software 

(includes work-inprocess) 122,736 179,479 

Furniture, fixtures, 

and equipment 144,661 117,430 

Accumulated 

depreciation (200,857) (240,709)

Total $416,065 $388,817 

The depreciation expense was $69 million and 

$70 million for 2010 and 2009, respectively.

7. Liabilities Due to 

Resolutions

As of December 31, 2010 and 2009, the DIF 

recorded liabilities totaling $30.4 billion and 

$34.5 billion to resolution entities representing 

the agreed-upon value of assets transferred from 

the receiverships, at the time of failure, to the 

acquirers/bridge institutions for use in funding 

the deposits assumed by the acquirers/bridge 

institutions. Eighty-nine percent of these liabilities 

are due to failures resolved under a whole bank 

purchase and assumption transaction, most with 

an accompanying loss-share agreement. The DIF 

satisfies these liabilities either by directly sending 

cash to the receiverships to fund loss-share and 

other expenses or by offsetting receivables from 

resolutions when a receivership declares a dividend. 

In addition, there was $80 million and $150 

million in unpaid deposit claims related to 

multiple receiverships as of December 31, 2010 

and 2009, respectively. The DIF pays these 

liabilities when the claims are approved. 
86 FINANCIAL STATEMENTS AND NOTES

8. Contingent Liabilities for:

Anticipated Failure of 

Insured Institutions

The DIF records a contingent liability and a loss 

provision for DIF-insured institutions that are 

likely to fail, absent some favorable event such as 

obtaining additional capital or merging, when the 

liability is probable and reasonably estimable. The 

contingent liability is derived by applying expected 

failure rates and loss rates to institutions based on 

supervisory ratings, balance sheet characteristics, 

and projected capital levels. 

The banking industry continued to face significant 

problems in 2010. The slowly recovering 

economic and credit environment challenged the 

soundness of many DIF-insured institutions. The 

ongoing weakness in housing and commercial 

real estate markets led to continuing asset 

quality problems, which hurt banking industry 

performance and weakened many institutions 

with significant portfolios of residential and 

commercial mortgages. Despite the challenging 

conditions evident in certain business lines and 

markets, the losses to the DIF from failures that 

occurred in 2010 fell short of the amount reserved 

at the end of 2009, as the aggregate number and 

size of institution failures in 2010 were less than 

anticipated. The removal from the reserve of 

banks that did fail in 2010, as well as projected 

favorable trends in bank supervisory downgrade 

and failure rates and the smaller size of institutions 

that remain troubled, all contribute to a decline 

by $26.3 billion to $17.7 billion in the contingent 

liability for anticipated failures of insured 

institutions at the end of 2010.

In addition to these recorded contingent 

liabilities, the FDIC has identified risk in the 

financial services industry that could result in 

additional losses to the DIF should potentially 

vulnerable insured institutions ultimately fail. As 

a result of these risks, the FDIC believes that it 

is reasonably possible that the DIF could incur 

additional estimated losses of up to approximately 

$24.5 billion. The actual losses, if any, will 

largely depend on future economic and market 

conditions and could differ materially from this 

estimate.

During 2010, 157 banks with combined assets of 

$93.2 billion failed. Supervisory and market data 

suggest that the banking industry will continue to 

experience elevated levels of stress over the coming 

year. The FDIC continues to evaluate the ongoing 

risks to affected institutions in light of the existing 

economic and financial conditions, and the extent 

to which such risks will continue to put stress on 

the resources of the insurance fund.

Litigation Losses

The DIF records an estimated loss for unresolved 

legal cases to the extent that those losses are 

considered probable and reasonably estimable. 

Probable litigation losses of $300 million were 

recorded for both December 31, 2010 and 2009, 

and the FDIC has determined that there are no 

reasonably possible losses from unresolved cases.

Other Contingencies

IndyMac Federal Bank Representation and 

Indemnification Contingent Liability

On March 19, 2009, the FDIC as receiver of 

IndyMac Federal Bank (IMFB) and certain 

subsidiaries (collectively, sellers) sold substantially 

all of the assets of IMFB and the respective 

subsidiaries, including mortgage loans and 

mortgage loan servicing rights, to OneWest Bank 

and its affiliates. To maximize sale returns, the 

sellers made certain customary representations 

regarding the assets and have certain obligations 

to indemnify the acquirers for losses incurred 

as a result of breaches of such representations, 

losses incurred as a result of the failure to obtain 

contractual counterparty consents to the sale, 

and third party claims arising from pre-sale acts 

and omissions of the sellers or the failed bank. 

Although the representations and indemnifications 

were made by or are obligations of the sellers, 

the FDIC, in its corporate capacity, guaranteed 

the receivership’s indemnification obligations 

under the sale agreements. The representations 

relate generally to ownership of and right to 
FINANCIAL STATEMENTS AND NOTES 87

sell the assets; compliance with applicable law 

in the origination of the loans; accuracy of the 

servicing records; validity of loan documents; 

and servicing of the loans serviced for others. 

Until the period for asserting claims under these 

arrangements have expired and all indemnification 

claims quantified and paid, losses could continue 

to be incurred by the receivership and, in 

turn, the DIF either directly, as a result of the 

FDIC corporate guaranty of the receivership’s 

indemnification obligations, or indirectly, as a 

result of a reduction in the receivership’s assets 

available to pay the DIF’s claims as subrogee for 

insured accountholders. The acquirers’ rights to 

assert actual and potential breaches extend out to 

March 19, 2019 for the Fannie Mae and Ginnie 

Mae reverse mortgage servicing portfolios (unpaid 

principal balance of $21.7 billion at December 31, 

2010 and 2009), March 19, 2014 for the Fannie 

Mae, Freddie Mac and Ginnie Mae mortgage 

servicing portfolios (unpaid principal balance of 

$45.3 billion at December 31, 2010 compared to 

$62.1 billion at December 31, 2009), and March 

19, 2011 for the remaining (private) mortgage 

servicing portfolio and whole loans (unpaid 

principal balance of $74.2 billion at December 

31, 2010 compared to $104.4 billion at 

December 31, 2009). 

As of December 31, 2010, the IndyMac 

receivership has paid $2.8 million in approved 

claims and has accrued an additional $2.6 million 

liability for claims asserted but unpaid. The FDIC 

believes it is likely that additional losses will be 

incurred, however quantifying the contingent 

liability associated with the representations and 

the indemnification obligations is subject to a 

number of uncertainties, including 1) borrower 

prepayment speeds, 2) the occurrence of borrower 

defaults and resulting foreclosures and losses, 3) 

the assertion by third party investors of claims 

with respect to loans serviced for them, 4) the 

existence and timing of discovery of breaches 

and the assertion of claims for indemnification 

for losses by the acquirer, 5) the compliance by 

the acquirer with certain loss mitigation and 

other conditions to indemnification, 6) third 

party sources of loss recovery (such as title 

companies and insurers), 7) the ability of the 

acquirer to refute claims from investors without 

incurring reimbursable losses, and 8) the cost 

to cure breaches and respond to third party 

claims. Because of these and other uncertainties 

that surround the liability associated with 

indemnifications and the quantification of 

possible losses, the FDIC has determined that 

while additional losses are probable, the amount is 

not estimable. 

Purchase and Assumption Indemnification

In connection with purchase and assumption 

agreements for resolutions, the FDIC in its 

receivership capacity generally indemnifies the 

purchaser of a failed institution’s assets and 

liabilities in the event a third party asserts a claim 

against the purchaser unrelated to the explicit 

assets purchased or liabilities assumed at the time 

of failure. The FDIC in its corporate capacity is a 

secondary guarantor if and when a receivership is 

unable to pay. These indemnifications generally 

extend for a term of six years after the date of 

institution failure. The FDIC is unable to estimate 

the maximum potential liability for these types 

of guarantees as the agreements do not specify 

a maximum amount and any payments are 

dependent upon the outcome of future contingent 

events, the nature and likelihood of which cannot 

be determined at this time. During 2010 and 

2009, the FDIC in its corporate capacity made no 

indemnification payments under such agreements 

and no amount has been accrued in the 

accompanying financial statements with respect to 

these indemnification guarantees.

FDIC Guaranteed Debt of 

Structured Transactions

During 2009 and 2010, the FDIC as receiver used 

three types of structured transactions to dispose of 

certain performing and non-performing residential 

mortgage loans, commercial loans, construction 

loans, and mortgage backed securities held by 

the receiverships. The three types of structured 

transactions are: 1) limited liability companies 

(LLCs), 2) securitizations, and 3) structured sale 

guaranteed notes (SSGNs). 
88 FINANCIAL STATEMENTS AND NOTES

LLCs

Under the LLC structure, the FDIC, as receiver, 

contributes a pool of assets to a newly-formed 

LLC and offers for sale, through a competitive bid 

process, some of the equity in the LLC. The dayto-day management of the LLC is transferred to 

the highest bidder along with the purchased equity 

interest. The FDIC, in its corporate capacity, 

guarantees notes issued by the LLCs. In exchange 

for the guarantee, the DIF receives a guarantee fee 

in either a lump-sum, up-front payment based on 

the estimated duration of the note or a monthly 

payment based on a fixed percentage multiplied by 

the outstanding note balance. The terms of these 

guarantees generally stipulate that all cash flows 

received from the entity’s collateral be used in the 

following order to: 1) pay operational expenses of 

the entity, 2) pay FDIC its contractual guarantee 

fee, 3) pay down the guaranteed notes (or, if 

applicable, fund the related defeasance account 

for payoff of the notes at maturity), and 4) pay 

the equity investors. If the FDIC is required to 

perform under these guarantees, it acquires an 

interest in the cash flows of the LLC equal to 

the amount of guarantee payments made plus 

accrued interest thereon. As mentioned above, 

this interest is senior to all equity interests and 

thus will be reimbursed, in full, prior to equity 

holders receiving a return on investment. Once 

all expenses have been paid, the guaranteed 

notes have been satisfied, and FDIC has been 

reimbursed for any guarantee payments, the equity 

holders receive any remaining cash flows. 

Private investors purchased a 40 or 50 percent 

ownership interest in the LLC structures for $1.6 

billion in cash and the LLCs issued notes of $4.4 

billion to the receiverships to partially fund the 

purchase of the assets. The receiverships hold the 

remaining 50 or 60 percent equity interest in the 

LLCs and, in most cases, the guaranteed notes. 

The FDIC in its corporate capacity guarantees the 

timely payment of principal and interest for the 

notes. The terms of the note guarantees extend 

until the earliest of 1) payment in full of the notes 

or 2) two years following the maturity date of the 

notes. The note with the longest term matures 

in 2020. In the event of note payment default by 

a LLC, the FDIC in its corporate capacity can 

take one or more of the following remedies: 1) 

accelerate the payment of the unpaid principal 

amount of the notes; 2) sell the assets held as 

collateral; or 3) foreclose on the equity interests of 

the debtor. 

Securitizations and SSGNs

Securitizations and SSGNs (collectively, “Trusts”) 

are transactions in which certain assets or 

securities from failed institutions are pooled into 

a trust structure. The Trusts issued senior notes, 

subordinate notes, and owner trust certificates 

collateralized by the mortgage-backed securities or 

loans that are transferred to the Trusts. 

Private investors purchased the senior notes 

issued by the Trusts for $4.6 billion in cash. The 

receiverships hold 100 percent of the subordinate 

notes and owner trust certificates (“OTCs”). 

The FDIC in its corporate capacity guarantees 

the timely payment of principal and interest for 

the senior notes. The terms of these guarantees 

generally stipulate that all cash flows received from 

the entity’s collateral be used in the following 

order to: 1) pay operational expenses of the 

entity, 2) pay FDIC its contractual guarantee 

fee, 3) pay interest on the guaranteed notes, 4) 

pay down the guaranteed notes, and 5) pay the 

holders of the subordinate notes and owner trust 

certificates. If the FDIC is required to perform 

under its guarantees, it acquires an interest in the 

cash flows of the trust equal to the amount of 

guarantee payments made plus accrued interest 

thereon. As mentioned above, this interest is 

senior to all interests of subordinate note holders 

and OTC holders and thus will be reimbursed, 

in full, prior to these holders receiving a return 

on any remaining investment. Once all expenses 

have been paid, the guaranteed notes have been 

satisfied, and FDIC has been reimbursed for any 

guarantee payments, the subordinate note holders 

and OTC holders receive the remaining cash flows.
FINANCIAL STATEMENTS AND NOTES 89

All Structured Transactions

Through December 31, 2010, the receiverships 

have transferred a portfolio of loans with an 

unpaid principal balance of $16.4 billion and 

mortgage-backed securities with a book value of 

$6.8 billion to the LLCs and Trusts which have 

issued notes guaranteed by the FDIC. To date, 

the DIF has collected guarantee fees totaling $128 

million and recorded a receivable for additional 

guarantee fees of $170 million, included in the 

“Interest receivable on investments and other 

assets, net” line item. All guarantee fees are 

recorded as deferred revenue, included in the 

“Accounts payable and other liabilities” line item, 

and recognized as revenue primarily on a straightline basis over the term of the notes. At December 

31, 2010, the amount of deferred revenue 

recognized on the balance sheet was $249 million. 

The DIF records no other structured transaction 

related assets or liabilities on its balance sheet.

The estimated loss on the guarantees to the DIF 

is based on the discounted present value of the 

expected guarantee payments by the FDIC, 

reimbursements to the FDIC for guarantee 

payments, and guarantee fee collections. Under 

both a base case and a more stressful modeling 

scenario, the cash flows from the LLC/Trust 

assets provide sufficient coverage to fully pay 

the debts by their maturity dates. Therefore, the 

estimated loss to the DIF from these guarantees 

is zero. To date, FDIC in its corporate capacity 

has not provided, and does not intend to provide, 

any form of financial or other support to a Trust 

or LLC that it was not previously contractually 

required to provide.

As of December 31, 2010, the maximum exposure 

to loss is $8.3 billion, the sum of all outstanding 

debt issued by LLCs and Trusts that is guaranteed 

by the FDIC in its corporate capacity. The 

$8.3 billion is comprised of $4.2 billion issued 

by LLCs, $3.8 billion issued by SSGNs, and 

$.3 billion issued by the securitization. Some 

transactions have established defeasance accounts 

to pay off the notes at maturity. A total of $756 

million has been deposited into these accounts.

9. Assessments 

The Dodd-Frank Act, enacted on July 21, 2010, 

provides for significant DIF assessment and 

capitalization reforms. As a result, the FDIC 

issued proposed regulations and adopted a new 

Restoration Plan. The following presents the 

required DIF reforms and the related FDIC 

actions taken to:

Q define the assessment base generally as average 

consolidated total assets minus average 

tangible equity (the new assessment base).

To amend its regulations, the FDIC issued 

a proposed rulemaking to redefine the 

assessment base used for calculating deposit 

insurance assessments from adjusted 

domestic deposits to average consolidated 

total assets minus average tangible equity 

(measured as Tier 1 capital).

Q annually establish and publish a designated 

reserve ratio (DRR) at the statutory minimum 

percentage of not less than 1.35 percent of 

estimated insured deposits or the comparable 

percentage of the new assessment base. In 

addition, the FDIC must annually determine 

if a dividend should be paid, based on the 

statutory requirement generally to declare 

dividends if the DIF reserve ratio exceeds 1.50 

percent of estimated insured deposits. The 

Board of Directors is given sole discretion to 

suspend or limit dividends and must prescribe 

relevant regulations.

In order to implement these requirements, 

the FDIC proposed a comprehensive 

long-range plan for deposit insurance 

fund management with the intent of 

maintaining a positive fund balance and 

moderate, steady assessment rates. The 

proposed rulemaking would set the DRR 

at 2 percent as a long-term minimum goal 

and adopt a lower assessment rate schedule 

when the reserve ratio reaches 1.15. To 

increase the probability that the fund 

reserve ratio will reach a level sufficient 

to withstand a future crisis, the proposed 

rulemaking would suspend dividends 
90 FINANCIAL STATEMENTS AND NOTES

permanently when the fund reserve 

ratio exceeds 1.5 percent and, in lieu of 

dividends, adopt lower assessment rate 

schedules when the reserve ratio reaches 

2 percent and 2.5 percent so that average 

rates would decline about 25 percent and 

50 percent, respectively. In December 

2010, the FDIC issued a final rule related 

to the DRR portion of the proposed 

rulemaking, setting the DRR at 2 percent 

effective on January 1, 2011.

Q return the reserve ratio to 1.35 percent 

of estimated insured deposits by September 

30, 2020.

To comply with this mandate, the FDIC 

adopted a new Restoration Plan that 

provides for the following: 1) the period 

of the Restoration Plan is extended from 

the end of 2016 to September 30, 2020; 

2) the FDIC will maintain the current 

schedule of assessment rates, foregoing the 

uniform 3 basis point increase previously 

scheduled to take effect on January 1, 

2011; 3) institutions may continue to 

use assessment credits without additional 

restriction during the term of the 

Restoration Plan; 4) the FDIC will pursue 

rulemaking in 2011 regarding the method 

that will be used to offset the effect on 

small institutions (less than $10 billion in 

assets) of the statutory requirement that 

the fund reserve ratio increase from 1.15 

percent to 1.35 percent by September 

30, 2020; and 5) at least semiannually, 

the FDIC will update its loss and income 

projections for the fund and, if needed, 

will increase or decrease rates, following 

notice-and-comment rulemaking, 

if required.

In addition, the FDIC issued a proposed 

rulemaking to revise the assessment system 

applicable to large insured depository institutions 

(IDIs) to better capture risk at the time an IDI 

assumes the risk, to better differentiate IDIs 

during periods of good economic and banking 

conditions based on how they would fare during 

periods of stress or economic downturns, and 

to better take into account the losses that the 

FDIC may incur if such an IDI fails. Specifically, 

proposed changes include eliminating risk 

categories and the use of long-term debt issuer 

ratings for large IDIs and combining CAMELS 

ratings and forward-looking financial measures 

into two scorecards: one for most large IDIs 

and another for large IDIs that are structurally 

and operationally complex or that pose unique 

challenges and risks in case of failure (highly 

complex IDIs).

Assessment Revenue

The assessment rate averaged approximately 17.72 

cents per $100 and 23.32 cents per $100 of the 

assessment base, as defined in part 327.5(b) of 

FDIC Rules and Regulations, for 2010 and 2009, 

respectively. During 2010 and 2009, $13.6 billion 

and $17.7 billion were recognized as assessment 

revenue from institutions. For those institutions 

that did not prepay assessments as described 

below, the “Assessments receivable, net” line 

item of $218 million represents the estimated 

premiums due from IDIs for the fourth quarter of 

2010. The actual deposit insurance assessments for 

the fourth quarter will be billed and collected at 

the end of the first quarter of 2011.

During 2009, the FDIC implemented actions 

to supplement DIF’s revenue through a special 

assessment and its liquidity through prepaid 

assessments from IDIs:

Q On May 22, 2009, the FDIC adopted a 

final rule imposing a 5 basis point special 

assessment on each IDI’s total assets minus 

Tier 1 capital as reported in its report of 

condition as of June 30, 2009. The special 

assessment of $5.5 billion was collected on 

September 30, 2009. 

Q On November 12, 2009, the FDIC adopted a 

final rule to address the DIF’s liquidity needs 

to pay for projected near-term failures and 

to ensure that the deposit insurance system 

remained industry-funded. Pursuant to the 

final rule, on December 30, 2009, a majority 

of IDIs prepaid estimated quarterly risk-based 
FINANCIAL STATEMENTS AND NOTES 91

assessments of $45.7 billion for the period 

October 2009 through December 2012. 

An institution’s quarterly risk-based deposit 

insurance assessment thereafter is offset by 

the amount prepaid until that amount is 

exhausted or until June 30, 2013, when any 

amount remaining would be returned to 

the institution. At December 31, 2010, the 

remaining prepaid amount of $30.1 billion is 

included in the “Unearned revenue – prepaid 

assessments” line item on the Balance Sheet.

Prepaid assessments were mandatory for 

all institutions, but the FDIC exercised 

its discretion as supervisor and insurer to 

exempt an institution from the prepayment 

requirement if the FDIC determined that the 

prepayment would adversely affect the safety 

and soundness of the institution. 

Reserve Ratio

As of December 31, 2010, the DIF reserve ratio 

was -0.12 percent of estimated insured deposits.

Assessments Related to FICO

Assessments continue to be levied on institutions 

for payments of the interest on obligations issued 

by the Financing Corporation (FICO). The FICO 

was established as a mixed-ownership government 

corporation to function solely as a financing vehicle 

for the former FSLIC. The annual FICO interest 

obligation of approximately $790 million is paid 

on a pro rata basis using the same rate for banks 

and thrifts. The FICO assessment has no financial 

impact on the DIF and is separate from deposit 

insurance assessments. The FDIC, as administrator 

of the DIF, acts solely as a collection agent for the 

FICO. During 2010 and 2009, approximately 

$796 million and $784 million, respectively, was 

collected and remitted to the FICO.

10. Other Revenue

Other Revenue for the Years Ended December 31 

Dollars in Thousands

2010 2009

Guarantee 

termination fees $0 $2,053,825

Dividends 

and interest 

on Citigroup 

trust preferred 

securities 177,675 231,227 

Guarantee fees 

for structured 

transactions 44,557 3,465

Debt guarantee 

surcharges 0 871,746

Other 15,193 13,348

Total $237,425 $3,173,611 

Guarantee Termination Fees and 

Dividends and Interest on TruPs

Bank of America 

In January 2009, the FDIC, the Treasury, and 

the Federal Reserve Bank of New York (federal 

parties) signed a Summary of Terms (Term 

Sheet) with Bank of America to guarantee or 

lend against a pool of up to $118.0 billion of 

financial instruments owned by Bank of America. 

In May 2009, prior to completing definitive 

documentation, Bank of America announced 

its intention to terminate negotiations with 

respect to the loss-share guarantee arrangement 

contemplated in the Term Sheet. Bank of 

America paid a termination fee of $425 million to 

compensate the federal parties for the guarantee 

from the date of the signing of the Term Sheet 

through the termination date. Of this amount, 
92 FINANCIAL STATEMENTS AND NOTES

the FDIC received and recognized revenue of $92 

million for the DIF in 2009. No losses were borne 

by the FDIC prior to the termination.

Citigroup

In connection with the termination of a lossshare agreement with Citigroup on December 23, 

2009 (see Note 5), the DIF recognized revenue 

of $1.962 billion for the fair value of the trust 

preferred securities received as consideration for 

the guarantee. The DIF recognized $178 million 

and $231 million of dividends and interest on the 

securities for 2010 and 2009, respectively.

Guarantee Fees for Structured Transactions

The FDIC in its corporate capacity participated 

in structured transactions as guarantor of the 

principal and interest due on certain notes 

issued by related limited liability companies and 

Trusts (see Note 8). The transactions were formed 

to maximize recoveries on assets purchased by 

these entities from receiverships. In exchange for 

the guarantees, the DIF receives guarantee fees 

that are recognized as revenue over the 

term of each guarantee on a straight line basis. 

The DIF recognized revenue in the amount of 

$45 million and $3 million during 2010 and 

2009, respectively.

Surcharges on FDIC-Guaranteed Debt

The DIF collected a surcharge on all debt issued 

under the Temporary Liquidity Guarantee 

Program (TLGP) after March 31, 2009 in an 

effort to provide an incentive for all participants to 

return to the non-guaranteed debt market. Unlike 

other TLGP fees (see Note 16), which are reserved 

for projected TLGP losses, the surcharges collected 

were deposited into the DIF. During 2009, the 

DIF collected surcharges in the amount of $872 

million. No surcharges were collected in 2010.

11. Operating Expenses

Operating expenses were $1.6 billion for 2010, 

compared to $1.3 billion for 2009. The chart below 

lists the major components of operating expenses.

Operating Expenses for the Years Ended December 31

Dollars in Thousands

2010 2009

Salaries and 

benefits $1,184,523 $901,836 

Outside services 360,880 244,479 

Travel 111,110 97,744 

Buildings and 

leased space 85,137 65,286 

Software/Hardware 

maintenance 50,575 40,678 

Depreciation 

of property and 

equipment 68,790 70,488 

Other 35,384 37,563 

Services 

reimbursed by 

TLGP (242) (3,613)

Services billed to 

resolution entities (303,516) (183,362)

Total $1,592,641 $1,271,099 
FINANCIAL STATEMENTS AND NOTES 93

12. Provision for

Insurance Losses

Provision for insurance losses was a negative $848 

million for 2010, compared to a positive $57.7 

billion for 2009. The 2010 negative provision 

is primarily due to lower-than-anticipated loss 

estimates at time of failure for banks that have 

failed and leveling off of estimated losses to the 

DIF from banks expected to fail. The following 

chart lists the major components of the provision 

for insurance losses.

Provision for Insurance Losses for the Years Ended 

December 31

Dollars in Thousands

2010 2009

Valuation Adjustments

Closed banks 

and thrifts $25,483,252 $37,586,603 

Other assets (4,406) (7,885)

Total Valuation 

Adjustments 25,478,846 37,578,718 

Contingent Liabilities Adjustments

Anticipated 

failure of 

insured 

institutions (26,326,689) 20,033,054 

Litigation 0 100,000 

Total Contingent 

Liabilities 

Adjustments (26,326,689) 20,133,054 

Total $(847,843) $57,711,772 

13. Employee Benefits

Pension Benefits and Savings Plans

Eligible FDIC employees (permanent and term 

employees with appointments exceeding one year) 

are covered by the federal government retirement 

plans, either the Civil Service Retirement System 

(CSRS) or the Federal Employees Retirement 

System (FERS). Although the DIF contributes a 

portion of pension benefits for eligible employees, 

it does not account for the assets of either 

retirement system. The DIF also does not have 

actuarial data for accumulated plan benefits or the 

unfunded liability relative to eligible employees. 

These amounts are reported on and accounted for 

by the U.S. Office of Personnel 

Management (OPM).

Eligible FDIC employees also may participate in a 

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

with matching contributions up to five percent. 

Under the Federal Thrift Savings Plan (TSP), 

the FDIC provides FERS employees with an 

automatic contribution of 1 percent of pay and an 

additional matching contribution up to 4 percent 

of pay. CSRS employees also can contribute to 

the TSP, however, they do not receive agency 

matching contributions.

Pension Benefits and Savings Plans Expenses for 

the Years Ended December 31

Dollars in Thousands

2010 2009

Civil Service Retirement 

System $6,387 $6,401 

Federal Employees 

Retirement System 

(Basic Benefit) 78,666 56,451 

FDIC Savings Plan 30,825 25,449 

Federal Thrift 

Savings Plan 28,679 20,503 

Total $144,557 $108,804 
94 FINANCIAL STATEMENTS AND NOTES

Postretirement Benefits

Other Than Pensions

The DIF has no postretirement health insurance 

liability since all eligible retirees are covered by 

the Federal Employees Health Benefit (FEHB) 

program. FEHB is administered and accounted 

for by the OPM. In addition, OPM pays the 

employer share of the retiree’s health insurance 

premiums.

The FDIC provides certain life and dental 

insurance coverage for its eligible retirees, the 

retirees’ beneficiaries, and covered dependents. 

Retirees eligible for life and dental insurance 

coverage are those who have qualified due to: 1) 

immediate enrollment upon appointment or five 

years of participation in the plan and 2) eligibility 

for an immediate annuity. The life insurance 

program provides basic coverage at no cost to 

retirees and allows converting optional coverage to 

direct-pay plans. For the dental coverage, retirees 

are responsible for a portion of the dental premium.

The FDIC has elected not to fund the 

postretirement life and dental benefit liabilities. 

As a result, the DIF recognized the underfunded 

status (difference between the accumulated 

postretirement benefit obligation and the plan 

assets at fair value) as a liability. Since there 

are no plan assets, the plan’s benefit liability 

is equal to the accumulated postretirement 

benefit obligation. At December 31, 2010 and 

2009, the liability was $166 million and $145 

million, respectively, which is recognized in the 

“Postretirement benefit liability” line item on the 

Balance Sheet. The cumulative actuarial losses 

(changes in assumptions and plan experience) and 

prior service costs (changes to plan provisions that 

increase benefits) were $19 million and $3 million 

at December 31, 2010 and 2009, respectively. 

These amounts are reported as accumulated 

other comprehensive income in the “Unrealized 

postretirement benefit loss” line item on the 

Balance Sheet.

The DIF’s expenses for postretirement benefits for 

2010 and 2009 were $9 million and $8 million, 

respectively, which are included in the current and 

prior year’s operating expenses on the Statement 

of Income and Fund Balance. The changes in 

the actuarial losses and prior service costs for 

2010 and 2009 of $16 million and $28 million, 

respectively, are reported as other comprehensive 

income in the “Unrealized postretirement benefit 

loss” line item. Key actuarial assumptions used in 

the accounting for the plan include the discount 

rate of 5.0 percent, the rate of compensation 

increase of 4.1 percent, and the dental coverage 

trend rate of 7.0 percent. The discount rate of 

5.0 percent is based upon rates of return on 

high-quality fixed income investments whose cash 

flows match the timing and amount of expected 

benefit payments. 

14. Commitments and OffBalance-Sheet Exposure

Commitments:

Leased Space

The FDIC’s lease commitments total $204 million 

for future years. The lease agreements contain 

escalation clauses resulting in adjustments, usually 

on an annual basis. The DIF recognized leased 

space expense of $45 million and $29 million for 

the years ended December 31, 2010 and 2009, 

respectively.

Leased Space Commitments

Dollars in Thousands

2011 2012 2013

$54,086 $48,047 $37,005

2014 2015 2016/Thereafter

$28,035 $19,731 $17,229

Off-Balance-Sheet Exposure:

Deposit Insurance

As of December 31, 2010, the estimated insured 

deposits for DIF were $6.2 trillion. This estimate 

is derived primarily from quarterly financial data 

submitted by insured depository institutions to 

the FDIC. This estimate represents the accounting 

loss that would be realized if all insured depository 

institutions were to fail and the acquired assets 
FINANCIAL STATEMENTS AND NOTES 95

provided no recoveries. The amount of $6.2 

trillion includes noninterest-bearing transaction 

accounts that received coverage under the DoddFrank Act beginning on December 31, 2010 to 

the end of 2012.

15. Disclosures About the

Fair Value of Financial

Instruments

Financial assets recognized and measured at fair 

value on a recurring basis at each reporting date 

include cash equivalents (Note 2), the investment 

in U.S. Treasury obligations (Note 3) and trust 

preferred securities (Note 5). The following tables 

present the DIF’s financial assets measured at fair 

value as of December 31, 2010 and 2009.

In exchange for prior loss-share guarantee coverage 

provided to Citigroup as described in Note 5, 

the FDIC and the Treasury received TruPs. At 

December 31, 2010, the fair value of the securities 

in the amount of $3.124 billion was classified 

as a Level 2 measurement based on an FDIC 

developed model using observable market data 

for traded Citigroup securities to determine the 

expected present value of future cash flows. Key 

inputs include market yields on U.S. Dollar 

interest rate swaps and discount rates for default, 

call and liquidity risks that are derived from 

traded Citigroup securities and modeled pricing 

relationships. 

Assets Measured at Fair Value at December 31, 2010

Dollars in Thousands

Fair Value Measurements Using

Quoted Prices in 

Active Markets for 

Identical Assets 

(Level 1)

Significant Other 

Observable Inputs 

(Level 2)

Significant 

Unobservable 

Inputs (Level 3)

Total Assets 

at Fair Value

Assets

Cash and cash equivalents 

(Special U.S. Treasuries)1 $27,076,606 $27,076,606 

Available for Sale Debt Securities

Investment in U.S. 

Treasury Obligations2 12,371,268 12,371,268 

Trust preferred securities $2,297,818 2,297,818 

Trust preferred securities held 

for UST (Note 16) 826,182 826,182 

Total Assets $39,447,874 $3,124,000 $0 $42,571,874 

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

U.S. Bureau of Public Debt.

(2) The investment in U.S. Treasury obligations is measured based on prevailing market yields for federal government entities.
96 FINANCIAL STATEMENTS AND NOTES

At December 31, 2009 the fair value of the TruPs 

in the amount of $2.667 billion was classified 

as a Level 3 measurement and was derived from 

a proprietary valuation model developed by 

the Treasury to estimate the value of financial 

instruments obtained as consideration for actions 

taken to stabilize the financial system under the 

Troubled Asset Relief Program. The change in 

fair value classification from Level 3 to Level 2 

between 2009 and 2010 was due to a greater 

reliance on observable inputs. The table below 

reconciles the beginning and ending Level 3 

balances for 2010.

Assets Measured at Fair Value at December 31, 2009

Dollars in Thousands

Fair Value Measurements Using

Quoted Prices in 

Active Markets for 

Identical Assets 

(Level 1)

Significant Other 

Observable Inputs 

(Level 2)

Significant 

Unobservable 

Inputs (Level 3)

Total Assets at Fair 

Value

Assets

Cash and cash equivalents 

(Special U.S. Treasuries)1 $54,092,423 $54,092,423 

Available for Sale Debt Securities

Investment in U.S. Treasury 

Obligations2 5,486,799 5,486,799 

Trust preferred securities $1,961,824 1,961,824 

Trust preferred securities held 

for UST (Note 16) 705,375 705,375

Total Assets $59,579,222 $0 $2,667,199 $62,246,421

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

the U.S. Bureau of Public Debt. 

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

Fair Value Measurements Using Unobservable Inputs (Level 3) - Trust Preferred Securities 

at December 31

Dollars in Thousands

2010 2009

Beginning balance $2,667,199 $0

Total gains or losses 0 0

Transfers in and/or out of Level 3 (2,667,199) 2,667,199

Total $0 $2,667,199

(a) The Corporation’s policy is to recognize Level 3 transfers as of the beginning of the reporting period. 

(b) The transfer from Level 3 to Level 2 was due to adoption of observable market data for these securities.

Some of the DIF’s financial assets and liabilities 

are not recognized at fair value but are recorded 

at amounts that approximate fair value due to 

their short maturities and/or comparability with 

current interest rates. Such items include interest 

receivable on investments, assessment receivables, 

other short-term receivables, accounts payable and 

other liabilities. 
FINANCIAL STATEMENTS AND NOTES 97

The net receivables from resolutions primarily 

include the DIF’s subrogated claim arising from 

obligations to insured depositors. The resolution 

entity assets that will ultimately be used to pay 

the corporate subrogated claim are valued using 

discount rates that include consideration of 

market risk. These discounts ultimately affect the 

DIF’s allowance for loss against the receivables 

from resolutions. Therefore, the corporate 

subrogated claim indirectly includes the effect of 

discounting and should not be viewed as being 

stated in terms of nominal cash flows.

Although the value of the corporate subrogated 

claim is influenced by valuation of resolution 

entity assets (see Note 4), such valuation is not 

equivalent to the valuation of the corporate 

claim. Since the corporate claim is unique, not 

intended for sale to the private sector, and has no 

established market, it is not practicable to estimate 

a fair value.

The FDIC believes that a sale to the private 

sector of the corporate claim would require 

indeterminate, but substantial, discounts for an 

interested party to profit from these assets because 

of credit and other risks. In addition, the timing 

of resolution entity payments to the DIF on the 

subrogated claim does not necessarily correspond 

with the timing of collections on resolution entity 

assets. Therefore, the effect of discounting used 

by resolution entities should not necessarily be 

viewed as producing an estimate of fair value for 

the net receivables from resolutions.

There is no readily available market for guarantees 

associated with systemic risk (see Note 16).

16. Systemic Risk 

Transactions 

Pursuant to systemic risk determinations, the 

FDIC established the Temporary Liquidity 

Guarantee Program (TLGP) for insured 

depository institutions, designated affiliates 

and certain holding companies during 2008, 

and provided loss-share guarantee assistance to 

Citigroup on a pool of covered assets in 2009, 

which was subsequently terminated as described 

in Note 5. The FDIC received consideration in 

exchange for guarantees issued under the TLGP 

and guarantee assistance provided to Citigroup.

At inception of the guarantees, the DIF recognized 

a liability for the non-contingent fair value of the 

obligation the FDIC has undertaken to stand 

ready to perform over the term of the guarantees. 

As required by FASB ASC 460, Guarantees, this 

non-contingent liability was measured at the 

amount of consideration received in exchange for 

issuing the guarantee. As systemic risk expenses 

are incurred (including contingent liabilities 

and valuation allowances), the DIF will reduce 

deferred revenue and recognize an offsetting 

amount as systemic risk revenue. Revenue 

recognition will also occur during the term of 

the guarantee if a supportable and documented 

analysis has determined that the consideration 

and any related interest/dividend income received 

exceeds the projected systemic risk losses. Any 

deferred revenue not absorbed by losses during the 

guarantee period will be recognized as revenue to 

the DIF.

Temporary Liquidity 

Guarantee Program

The FDIC established the TLGP on October 14, 

2008 in an effort to counter the system-wide crisis 

in the nation’s financial sector. The TLGP consists 

of two components: 1) the Debt Guarantee 

Program (DGP), and 2) the Transaction Account 

Guarantee Program (TAG). The program is 

codified in part 370 of title 12 of the Code of 

Federal Regulations (12 CFR Part 370). 

Debt Guarantee Program

The DGP permitted participating entities to issue 

FDIC-guaranteed senior unsecured debt through 

October 31, 2009. The FDIC’s guarantee for all 

such debt expires on the earliest of the conversion 

date for mandatory convertible debt, the stated 

date of maturity, or December 31, 2012. 

All fees for participation in the DGP are reserved 

for possible TLGP losses. Through the end of 

the debt issuance period, the DIF collected $8.3 

billion of guarantee fees and fees of $1.2 billion 

from participating entities that elected to issue 
98 FINANCIAL STATEMENTS AND NOTES

senior unsecured non-guaranteed debt. The 

fees are included in the “Cash and investments – 

restricted – systemic risk” line item and recognized 

as “Deferred revenue-systemic risk” on the 

Balance Sheet. 

Additionally, as described in Note 5, the FDIC 

holds $800 million (liquidation amount) of 

Citigroup TruPs (and any related interest) as 

security in the event payments are required to be 

made by the DIF for guaranteed debt instruments 

issued by Citigroup or any of its affiliates under 

the TLGP. At December 31, 2010, the fair value 

of these securities totaled $826 million, and was 

determined using the valuation methodology 

described in Note 15 for other Citigroup TruPs 

held by the DIF. There is an offsetting liability in 

“Deferred Revenue- Systemic Risk”, representing 

amounts to be transferred to the Treasury or, if 

necessary, paid for guaranteed debt instruments 

issued by Citigroup or its affiliates under the 

TLGP. Consequently, there is no impact on the 

fund balance to the DIF. 

The FDIC’s payment obligation under the DGP 

is triggered by a payment default. In the event 

of default, the FDIC will continue to make 

scheduled principal and interest payments under 

the terms of the debt instrument through its 

maturity, or in the case of mandatory convertible 

debt, through the mandatory conversion date. The 

debtholder or representative must assign to the 

FDIC the right to receive any and all distributions 

on the guaranteed debt from any insolvency 

proceeding, including the proceeds of any 

receivership or bankruptcy estate, to the extent of 

payments made under the guarantee. 

Since inception of the program, $618 billion in 

total guaranteed debt has been issued. Through 

December 31, 2010, the FDIC has paid $8 

million in claims for principal and interest arising 

from guaranteed debt default by three debt issuers. 

Sixty-six financial entities (39 insured depository 

institutions and 27 affiliates and holding 

companies) had $267.1 billion in guaranteed 

debt outstanding at year end. This reported 

outstanding debt at year end is derived from data 

submitted by debtholders. At December 31, 2010, 

the contingent liability for this guarantee of $149 

million is included in the “Contingent liability for 

systemic risk” line item. The FDIC believes that 

it is reasonably possible that additional estimated 

losses of approximately $545 million could 

occur under the DGP. Given the magnitude of 

outstanding debt and the uncertainty surrounding 

future possible losses, the FDIC believes it is 

appropriate to continue its current practice of 

deferring income recognition for the remaining 

$9.1 billion of “Deferred Revenue-Systemic Risk.” 

Transaction Account Guarantee Program

The Transaction Account Guarantee Program, 

implemented under the TLGP, provided unlimited 

coverage through December 31, 2010 for noninterest bearing transaction accounts held by 

insured depository institutions on all deposit 

amounts exceeding the fully insured limit of 

$250,000. During 2010 and 2009, the FDIC 

collected TAG fees of $481 million and $639 

million, respectively, which are earmarked for 

TLGP possible losses and payments. At December 

31, 2010, the “Receivables and other assets – 

systemic risk” line item includes $50 million of 

estimated TAG fees due from insured depository 

institutions on March 31, 2011. 

Upon the failure of a participating insured 

depository institution, payment of guaranteed 

claims of depositors with non-interest bearing 

transaction accounts were funded with TLGP 

restricted cash. The FDIC is subrogated to these 

claims of depositors against the failed entity, 

and dividend payments by the receivership are 

deposited back into TLGP restricted accounts. 

Since inception of the TAG, covered claims were 

estimated to be $8.8 billion with estimated losses 

of $2.3 billion as of December 31, 2010. 
FINANCIAL STATEMENTS AND NOTES 99

Systemic Risk Activity at December 31, 2010

Dollars in Thousands

Cash and

investments - 

restricted - systemic 

risk (1) 

Receivables and 

other assets - 

systemic risk

Deferred revenue - 

systemic risk

Contingent liability - 

systemic risk

Revenue/Expenses - 

systemic risk

Balance at 01-01-10 $6,430,589 $3,298,819 $(7,847,447) $(1,411,966)

TAG fees collected 480,781 (187,541) (293,240)

DGP assessments collected 3 (3)

Receivable for TAG fees 50,235 (50,235)

Receivable for TAG 

accounts at failed 

institutions (493,128)

Dividends and overnight 

interest on TruPs held 

for UST 63,856 (63,856)

Market value adjustment 

on TruPs held for UST 120,807 (120,807)

Estimated losses for 

TAG accounts at failed 

institutions (583,626) 583,626 $583,626 

Provision for TLGP losses 

in future failures (1,262,639) 1,262,639 (1,262,639)

Guaranteed debt 

obligations paid (7,970) 7,970 5,953 

U.S. investment 

interest collected 12,063 (12,063)

Interest receivable on U.S. 

Treasury obligations 720 (720)

Amortization of U.S. 

Treasury obligations 2,191 (2,191)

Accrued interest purchased (6,822) 6,822 

Unrealized gain on U.S. 

Treasury obligations 247 (247)

TLGP operating expenses 489 242 

Reimbursement to DIF 

for TAG claims and TLGP 

operating expenses incurred (264,834)

Totals $6,646,968 $2,269,422 $(9,054,541) $(149,327) $(672,818)

(1) As of December 31, 2010, the fair value of investments in U.S. Treasury obligations held by TLGP was $1.6 billion. An unrealized gain of $247 thousand is 

reported in the “Deferred revenue - systemic risk” line item.
100 FINANCIAL STATEMENTS AND NOTES

17. Subsequent Events 

Subsequent events have been evaluated through 

March 14, 2011, the date the financial statements 

are available to be issued.

2011 Failures through March 14, 2011

Through March 14, 2011, 25 insured institutions 

failed in 2011 with total losses to the DIF 

estimated to be $1.8 billion. 

Assessments

On February 7, 2011, the FDIC adopted a Final 

Rule, Assessments, Large Bank Pricing, which 

becomes effective on April 1, 2011. The Rule 

amends 12 CFR 327 to implement revisions 

to the FDI Act made by the Dodd-Frank Act 

to: 1) redefine the assessment base used for 

calculating deposit insurance assessments; 2) 

change the assessment rate adjustments; 3) 

lower the initial base rate schedule and the total 

base rate schedule for all insured depository 

institutions to collect approximately the same 

revenue for the DIF under the new assessment 

base as would have been collected under the 

former assessment base; 4) provide progressively 

lower assessment rate schedules when the reserve 

ratio of the DIF reaches certain enumerated 

levels and suspend dividends indefinitely; and 5) 

change the risk-based assessment system for large 

insured depository institutions (generally, those 

institutions with at least $10 billion in 

total assets).

During the last quarter of 2010, FDIC issued 

three Notices of Proposed Rulings (NPRs) 

in order to propose revisions to the FDI Act, 

as amended (see Note 9). This Final Rule 

encompasses all of the proposals contained in the 

NPRs, except the proposal setting the Designated 

Reserve Ratio (DRR), which was covered in the 

DRR Final Rule issued in December 2010. 
FINANCIAL STATEMENTS AND NOTES 101

FSLIC Resolution Fund

Federal Deposit Insurance Corporation

FSLIC Resolution Fund Balance Sheet at December 31

Dollars in Thousands

2010 2009

Assets

Cash and cash equivalents $3,547,907 $3,470,125 

Receivables from thrift resolutions and other 

assets, net (Note 3) 23,408 32,338 

Receivables from U.S. Treasury for goodwill 

litigation (Note 4) 323,495 405,412 

Total Assets $3,894,810 $3,907,875 

Liabilities 

Accounts payable and other liabilities $2,990 $2,972 

Contingent liabilities for goodwill litigation 

(Note 4) 323,495 405,412 

Total Liabilities 326,485 408,384 

Resolution Equity (Note 5)

Contributed capital 127,792,696 127,847,696 

Accumulated deficit (124,224,371) (124,348,205)

Total Resolution Equity 3,568,325 3,499,491 

Total Liabilities and Resolution Equity $3,894,810 $3,907,875 

The accompanying notes are an integral part of these financial statements.
102 FINANCIAL STATEMENTS AND NOTES

FSLIC Resolution Fund

Federal Deposit Insurance Corporation

FSLIC Resolution Fund Statement of Income and Accumulated Deficit for the Years Ended December 31

Dollars in Thousands

2010 2009

Revenue

Interest on U.S. Treasury obligations $3,876 $3,167 

Other revenue 9,393 5,276 

Total Revenue 13,269 8,443 

Expenses and Losses

Operating expenses 3,832 4,905 

Provision for losses (945) 2,051 

Goodwill litigation expenses (Note 4) (53,266) 408,997 

Recovery of tax benefits (63,256) (10,279)

Other expenses 3,070 2,908 

Total Expenses and Losses (110,565) 408,582 

Net Income (Loss) 123,834 (400,139)

Accumulated Deficit - Beginning (124,348,205) (123,948,066)

Accumulated Deficit - Ending $(124,224,371) $(124,348,205)

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

 
FINANCIAL STATEMENTS AND NOTES 103

FSLIC Resolution Fund

Federal Deposit Insurance Corporation

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

Dollars in Thousands

2010 2009

Operating Activities

Net Income (Loss) $123,834 $(400,139)

Adjustments to reconcile net income (loss) to net 

cash provided (used) by operating activities:

Provision for losses (945) 2,051 

Change in Operating Assets and Liabilities:

Decrease in receivables from thrift resolutions and 

other assets 9,875 563 

Increase (Decrease) in accounts payable and 

other liabilities 18 (5,094)

(Decrease) Increase in contingent liabilities for 

goodwill litigation (81,917) 263,107 

Net Cash Provided (Used) by Operating Activities 50,865 (139,512)

Financing Activities

Provided by:

U.S. Treasury payments for goodwill litigation 

(Note 4) 26,917 142,410 

Net Cash Provided by Financing Activities 26,917 142,410 

Net Increase in Cash and Cash Equivalents 77,782 2,898 

Cash and Cash Equivalents - Beginning 3,470,125 3,467,227 

Cash and Cash Equivalents - Ending $3,547,907 $3,470,125 

The accompanying notes are an integral part of these financial statements.
104 FINANCIAL STATEMENTS AND NOTES

Notes to the Financial Statements

FSLIC Resolution Fund

December 31, 2010 and 2009 

1. Legislative History 

and Operations/

Dissolution of the FSLIC 

Resolution Fund

Legislative History

The Federal Deposit Insurance Corporation 

(FDIC) is the independent deposit insurance 

agency created by Congress in 1933 to maintain 

stability and public confidence in the nation’s 

banking system. Provisions that govern the 

operations of the FDIC are generally found in 

the Federal Deposit Insurance (FDI) Act, as 

amended (12 U.S.C. 1811, et seq). In carrying 

out the purposes of the FDI Act, as amended, the 

FDIC insures the deposits of banks and savings 

associations, and in cooperation with other 

federal and state agencies promotes the safety and 

soundness of insured depository institutions by 

identifying, monitoring and addressing risks to 

the deposit insurance fund established in the FDI 

Act, as amended. In addition, FDIC is charged 

with responsibility for the sale of remaining 

assets and satisfaction of liabilities associated with 

the former Federal Savings and Loan Insurance 

Corporation (FSLIC) and the former Resolution 

Trust Corporation (RTC). 

The U.S. Congress created the FSLIC through the 

enactment of the National Housing Act of 1934. 

The Financial Institutions Reform, Recovery, and 

Enforcement Act of 1989 (FIRREA) abolished the 

insolvent FSLIC, created the FSLIC Resolution 

Fund (FRF), and transferred the assets and 

liabilities of the FSLIC to the FRF-except those 

assets and liabilities transferred to the RTCeffective on August 9, 1989. Further, the FIRREA 

established the Resolution Funding Corporation 

(REFCORP) to provide part of the initial funds 

used by the RTC for thrift resolutions.

The RTC Completion Act of 1993 (RTC 

Completion Act) terminated the RTC as of 

December 31, 1995. All remaining assets and 

liabilities of the RTC were transferred to the FRF 

on January 1, 1996. Today, the FRF consists of 

two distinct pools of assets and liabilities: one 

composed of the assets and liabilities of the FSLIC 

transferred to the FRF upon the dissolution of the 

FSLIC (FRF-FSLIC), and the other composed 

of the RTC assets and liabilities (FRF-RTC). 

The assets of one pool are not available to satisfy 

obligations of the other.

The FDIC is the administrator of the FRF and 

the Deposit Insurance Fund. These funds are 

maintained separately to carry out their respective 

mandates.

Operations/Dissolution of the FRF

The FRF will continue operations until all of 

its assets are sold or otherwise liquidated and all 

of its liabilities are satisfied. Any funds remaining 

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

Treasury. Any remaining funds of the FRF-RTC 

will be distributed to the REFCORP to pay the 

interest on the REFCORP bonds. In addition, 

the FRF-FSLIC has available until expended $602 

million in appropriations to facilitate, if required, 

efforts to wind up the resolution activity of the 

FRF-FSLIC. 

The FDIC has conducted an extensive review and 

cataloging of FRF’s remaining assets and liabilities. 

Some of the issues and items that remain open in 

FRF are: 1) criminal restitution orders (generally 

have from 3 to 13 years remaining to enforce); 

2) collections of settlements and judgments 

obtained against officers and directors and 

other professionals responsible for causing or 

contributing to thrift losses (generally have from 

one to 10 years remaining to enforce, unless 

the judgments are renewed, which will result in 

significantly longer periods for collection for some 

judgments); 3) numerous assistance agreements 

entered into by the former FSLIC (FRF could 

continue to receive tax benefits sharing through 

the year 2012); 4) goodwill litigation (no final 

date for resolution has been established; see 

Note 4); and 5) affordable housing program 

monitoring (requirements can exceed 25 years). 

The FRF could potentially realize recoveries from 

tax benefits sharing of up to approximately $52 

million; however, any associated recoveries are not 
FINANCIAL STATEMENTS AND NOTES 105

reflected in FRF’s financial statements given the 

significant uncertainties surrounding the ultimate 

outcome.

Receivership Operations 

The FDIC is responsible for managing and 

disposing of the assets of failed institutions in an 

orderly and efficient manner. The assets held by 

receivership entities, and the claims against them, 

are accounted for separately from FRF assets and 

liabilities to ensure that receivership proceeds are 

distributed in accordance with applicable laws 

and regulations. Also, the income and expenses 

attributable to receiverships are accounted for as 

transactions of those receiverships. Receiverships 

are billed by the FDIC for services provided on 

their behalf.

2. Summary of Significant 

Accounting Policies

General

These financial statements pertain to the financial 

position, results of operations, and cash flows of 

the FRF and are presented in accordance with 

U.S. generally accepted accounting principles 

(GAAP). As permitted by the Federal Accounting 

Standards Advisory Board’s Statement of Federal 

Financial Accounting Standards 34, The Hierarchy 

of Generally Accepted Accounting Principles, 

Including the Application of Standards Issued by 

the Financial Accounting Standards Board, the 

FDIC prepares financial statements in conformity 

with standards promulgated by the Financial 

Accounting Standards Board (FASB). These 

statements do not include reporting for assets and 

liabilities of receivership entities because these 

entities are legally separate and distinct, and the 

FRF does not have any ownership interests in 

them. Periodic and final accountability reports 

of receivership entities are furnished to courts, 

supervisory authorities, and others upon request.

Use of Estimates

Management makes estimates and assumptions 

that affect the amounts reported in the financial 

statements and accompanying notes. Actual results 

could differ from these estimates. Where it is 

reasonably possible that changes in estimates will 

cause a material change in the financial statements 

in the near term, the nature and extent of such 

changes in estimates have been disclosed. The 

more significant estimates include allowance for 

losses on receivables from thrift resolutions and 

the estimated losses for litigation.

Cash Equivalents

Cash equivalents are short-term, highly liquid 

investments consisting primarily of U.S. Treasury 

Overnight Certificates.

Provision for Losses

The provision for losses represents the change 

in the valuation of the receivables from thrift 

resolutions and other assets.

Disclosure about Recent Relevant 

Accounting Pronouncements

Q ASU No. 2010-06, Fair Value Measurements 

and Disclosures (Topic 820) – Improving 

Disclosures about Fair Value Measurements, 

requires enhanced disclosures for significant 

transfers into and out of Level 1 (measured 

using quoted prices in active markets) and 

Level 2 (measured using other observable 

inputs) of the fair value measurement 

hierarchy. These disclosures are effective 

for interim and annual reporting periods 

beginning after December 15, 2009, but 

did not impact the FRF in 2010. Separate 

disclosure of the gross purchases, sales, 

issuances, and settlements activity for Level 

3 (measured using unobservable inputs) fair 

value measurements will become effective 

for fiscal years beginning after December 15, 

2010. Currently, the additional disclosures are 

not expected to impact the FRF. 

Other recent accounting pronouncements have 

been deemed to be not applicable or material to 

the financial statements as presented.
106 FINANCIAL STATEMENTS AND NOTES

Related Parties

The nature of related parties and a description of 

related party transactions are discussed in Note 1 

and disclosed throughout the financial statements 

and footnotes.

3. Receivables From Thrift 

Resolutions and Other 

Assets, Net

Receivables From Thrift Resolutions

The receivables from thrift resolutions include 

payments made by the FRF to cover obligations 

to insured depositors, advances to receiverships for 

working capital, and administrative expenses paid 

on behalf of receiverships. Any related allowance 

for loss represents the difference between the 

funds advanced and/or obligations incurred and 

the expected repayment. Assets held by the FDIC 

in its receivership capacity for the former RTC 

are a significant source of repayment of the FRF’s 

receivables from thrift resolutions. As of December 

31, 2010, eight of the 850 FRF receiverships 

remain active. Half of these receiverships are 

expected to complete their liquidation efforts 

during 2011. The remaining four receiverships 

will remain active until their goodwill litigation or 

liability-related impediments are resolved.

The FRF receiverships held assets with a book 

value of $18 million and $20 million as of 

December 31, 2010 and 2009, respectively 

(which primarily consist of cash, investments, 

and miscellaneous receivables). At December 31, 

2010, $13 million of the $18 million in assets in 

the FRF receiverships was cash held for non-FRF, 

third party creditors. 

Other Assets 

Other assets primarily include credit enhancement 

reserves valued at $17 million and $21 million 

as of December 31, 2010 and 2009, respectively. 

The credit enhancement reserves resulted from 

swap transactions where the former RTC received 

mortgage-backed securities in exchange for singlefamily mortgage loans. The RTC supplied credit 

enhancement reserves for the mortgage loans in 

the form of cash collateral to cover future credit 

losses over the remaining life of the loans. These 

cash reserves, which may cover future credit losses 

through 2020, are valued by estimating credit 

losses on the underlying loan portfolio and then 

discounting cash flow projections using marketbased rates.

4. Contingent Liabilities for:

Goodwill Litigation

In United States v. Winstar Corp., 518 U.S. 839 

(1996), the Supreme Court held that when it 

became impossible following the enactment of 

FIRREA in 1989 for the federal government to 

perform certain agreements to count goodwill 

toward regulatory capital, the plaintiffs were 

entitled to recover damages from the United 

States. Six remaining cases are pending against 

the United States based on alleged breaches of 

these agreements.

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

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

concluded that the FRF is legally available to 

satisfy all judgments and settlements in the 

goodwill litigation involving supervisory action 

or assistance agreements. OLC determined 

Receivables From Thrift Resolutions and Other 

Assets, Net at December 31

Dollars in Thousands

2010 2009

Receivables from 

closed thrifts $5,763,949 $5,744,509 

Allowance for losses (5,762,186) (5,736,737)

Receivables from Thrift 

Resolutions, Net 1,763 7,772

Other assets 21,645 24,566 

Total $23,408 $32,338
FINANCIAL STATEMENTS AND NOTES 107

that nonperformance of these agreements was a 

contingent liability that was transferred to the 

FRF on August 9, 1989, upon the dissolution of 

the FSLIC. On July 23, 1998, the U.S. Treasury 

determined, based on OLC’s opinion, that 

the FRF is the appropriate source of funds for 

payments of any such judgments and settlements. 

The FDIC General Counsel concluded that, as 

liabilities transferred on August 9, 1989, these 

contingent liabilities for future nonperformance 

of prior agreements with respect to supervisory 

goodwill were transferred to the FRF-FSLIC, 

which is that portion of the FRF encompassing 

the obligations of the former FSLIC. The FRFRTC, which encompasses the obligations of 

the former RTC and was created upon the 

termination of the RTC on December 31, 1995, is 

not available to pay any settlements or judgments 

arising out of the goodwill litigation. 

The FRF can draw from an appropriation 

provided by Section 110 of the Department 

of Justice Appropriations Act, 2000 (Public 

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

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

necessary for the payment of judgments and 

compromise settlements in the goodwill litigation. 

This appropriation is to remain available until 

expended. Because an appropriation is available 

to pay such judgments and settlements, any 

estimated liability for goodwill litigation should 

have a corresponding receivable from the U.S. 

Treasury and therefore have no net impact on the 

financial condition of the FRF-FSLIC. 

For the year ended December 31, 2010, the FRF 

paid $27 million as a result of judgments and 

settlements in four goodwill cases compared to 

$142 million for four goodwill cases for the year 

ended December 31, 2009. Of the four goodwill 

cases paid during 2010, only one was active at 

December 31, 2009 due to ongoing litigation. 

The FRF received appropriations from the U.S. 

Treasury to fund these payments. 

The contingent liability and offsetting receivable 

from the U.S. Treasury as of December 31, 2010 

was $323 million for one case compared with 

$405 million for six cases as of December 31, 

2009. No new cases were accrued during 2010. 

The one case comprising the contingent liability 

and offsetting receivable at December 31, 2010 

was accrued prior to 2010 following an appellate 

decision for a specific monetary amount. 

This case is currently before the lower court 

pending on remand following appeal and is still 

considered active. 

Based on representations from the DOJ, the entity 

that defends these lawsuits against the United 

States, the FDIC is unable to estimate a range 

of loss to the FRF-FSLIC for the remaining five 

goodwill cases considered active as of December 

31, 2010. Three of these cases were not accrued 

because court decisions are still pending. In the 

other two cases the appellate courts decided to 

award nothing, but the cases are still active due to 

continued legal proceedings.

Six goodwill cases were active as of December 

31, 2010 compared with eight active cases as of 

December 31, 2009. Of the cases considered 

active at year end 2009, one was fully adjudicated 

with no award and one was settled and paid 

during 2010.

In addition, the FRF-FSLIC pays the goodwill 

litigation expenses incurred by the DOJ based on 

a Memorandum of Understanding (MOU) dated 

October 2, 1998, between the FDIC and the DOJ. 

Under the terms of the MOU, the FRF-FSLIC 

paid $2 million and $4 million to the DOJ for 

fiscal years (FY) 2011 and 2010, respectively. As 

in prior years, the DOJ carried over and applied 

all unused funds toward current FY charges. At 

December 31, 2010, the DOJ had an additional 

$3 million in unused FY 2010 funds that were 

applied against FY 2011 charges of $5 million. 

Guarini Litigation

Paralleling the goodwill cases were similar cases 

alleging that the government breached agreements 

regarding tax benefits associated with certain 

FSLIC-assisted acquisitions. These agreements 

allegedly contained the promise of tax deductions 

for losses incurred on the sale of certain thrift 

assets purchased by plaintiffs from the FSLIC, 

even though the FSLIC provided the plaintiffs 
108 FINANCIAL STATEMENTS AND NOTES

with tax-exempt reimbursement. A provision in 

the Omnibus Budget Reconciliation Act of 1993 

(popularly referred to as the “Guarini legislation”) 

eliminated the tax deductions for these losses.

All eight of the original Guarini cases have been 

settled. However, a case settled in 2006 further 

obligates the FRF-FSLIC as a guarantor for all tax 

liabilities in the event the settlement amount is 

determined by tax authorities to be taxable. The 

maximum potential exposure under this guarantee 

is approximately $81 million. However, the FDIC 

believes that it is very unlikely the settlement will 

be subject to taxation. More definitive information 

may be available during 2011, after the Internal 

Revenue Service (IRS) completes its Large Case 

Program audit on the affected Corporation’s 2006 

returns; this audit is currently underway. The FRF 

is not expected to fund any payment under this 

guarantee and no liability has been recorded. 

Representations and Warranties

As part of the RTC’s efforts to maximize 

the return from the sale of assets from thrift 

resolutions, representations and warranties, and 

guarantees were offered on certain loan sales. 

The majority of loans subject to these agreements 

have been paid off, refinanced, or the period for 

filing claims has expired. The FDIC’s estimate of 

maximum potential exposure to the FRF is zero. 

No claims in connection with representations and 

warranties have been asserted since 1998 on the 

remaining open agreements. Because of the age of 

the remaining portfolio and lack of claim activity, 

the FDIC does not expect new claims to be 

asserted in the future. Consequently, the financial 

statements at December 31, 2010 and 2009, do 

not include a liability for these agreements.
FINANCIAL STATEMENTS AND NOTES 109

5. Resolution Equity

As stated in the Legislative History section of 

Note 1, the FRF is comprised of two distinct 

pools: the FRF-FSLIC and the FRF-RTC. The 

FRF-FSLIC consists of the assets and liabilities of 

the former FSLIC. The FRF-RTC consists of the 

assets and liabilities of the former RTC. Pursuant 

to legal restrictions, the two pools are maintained 

separately and the assets of one pool are not 

available to satisfy obligations of the other.

The following table shows the contributed capital, 

accumulated deficit, and resulting resolution 

equity for each pool.

Resolution Equity at December 31, 2010

Dollars in Thousands

FRF-FSLIC FRF-RTC FRF Consolidated

Contributed capital – 

beginning $46,098,359 $81,749,337 $127,847,696 

Contributed capital – 

ending 46,043,359 81,749,337 127,792,696 

Accumulated deficit (42,643,726) (81,580,645) (124,224,371)

Total $3,399,633 $168,692 $3,568,325

Contributed Capital

The FRF-FSLIC and the former RTC received 

$43.5 billion and $60.1 billion from the U.S. 

Treasury, respectively, to fund losses from thrift 

resolutions prior to July 1, 1995. Additionally, 

the FRF-FSLIC issued $670 million in capital 

certificates to the Financing Corporation (a 

mixed-ownership government corporation 

established to function solely as a financing vehicle 

for the FSLIC) and the RTC issued $31.3 billion 

of these instruments to the REFCORP. FIRREA 

prohibited the payment of dividends on any of 

these capital certificates.

Through December 31, 2010, the FRF-RTC has 

returned $4.6 billion to the U.S. Treasury and 

made payments of $5.0 billion to the REFCORP. 

These actions serve to reduce contributed capital. 

The most recent payment to the REFCORP was 

in January of 2008 for $225 million. 

FRF-FSLIC received $27 million in U.S. Treasury 

payments for goodwill litigation in 2010. 

Furthermore, $323 million and $405 million were 

accrued for as receivables at December 31, 2010 

and 2009, respectively.

Accumulated Deficit

The accumulated deficit represents the cumulative 

excess of expenses and losses over revenue for 

activity related to the FRF-FSLIC and the FRFRTC. Approximately $29.8 billion and $87.9 

billion were brought forward from the former 

FSLIC and the former RTC on August 9, 1989, 

and January 1, 1996, respectively. The FRFFSLIC accumulated deficit has increased by $12.8 

billion, whereas the FRF-RTC accumulated 

deficit has decreased by $6.3 billion, since their 

dissolution dates.
110 FINANCIAL STATEMENTS AND NOTES

6. Disclosures About 

the Fair Value of 

Financial Instruments 

The financial assets recognized and measured at 

fair value on a recurring basis at each reporting 

date are cash equivalents and credit enhancement 

reserves. The following table presents the FRF’s 

financial assets measured at fair value as of 

December 31, 2010 and 2009.

Assets Measured at Fair Value at December 31, 2009

Dollars in Thousands

Fair Value Measurements Using

Quoted Prices in 

Active Markets for 

Identical Assets 

(Level 1)

Significant Other 

Observable Inputs 

(Level 2)

Significant 

Unobservable Inputs 

(Level 3)

Total Assets at Fair 

Value

Assets

Cash equivalents 

(Special U.S. Treasuries)1 $3,470,125 $3,470,125 

Credit enhancements 

reserves2 $21,278 21,278 

Total Assets $3,470,125 $21,278 $3,491,403 

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

the U.S. Bureau of Public Debt.

(2) Credit enhancement reserves are valued by performing projected cash flow analyses using market-based assumptions (see Note 3).

Assets Measured at Fair Value at December 31, 2010

Dollars in Thousands

Fair Value Measurements Using

Quoted Prices in 

Active Markets for 

Identical Assets 

(Level 1)

Significant Other 

Observable Inputs 

(Level 2)

Significant 

Unobservable Inputs 

(Level 3)

Total Assets at 

Fair Value

Assets

Cash and cash 

equivalents (Special 

U.S. Treasuries)1 $3,547,907 $3,547,907 

Credit enhancement 

reserves2 $17,378 17,378 

Total Assets $3,547,907 $17,378 $3,565,285 

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

the U.S. Bureau of Public Debt.

(2) Credit enhancement reserves are valued by performing projected cash flow analyses using market-based assumptions (see Note 3).

Some of the FRF’s financial assets and liabilities 

are not recognized at fair value but are recorded at 

amounts that approximate fair value due to their 

short maturities and/or comparability with current 

interest rates. Such items include other short-term 

receivables and accounts payable and other liabilities.

The net receivable from thrift resolutions is 

influenced by the underlying valuation of 

receivership assets. This corporate receivable 

is unique and the estimate presented is not 

necessarily indicative of the amount that could 

be realized in a sale to the private sector. Such a 

sale would require indeterminate, but substantial, 

discounts for an interested party to profit from 

these assets because of credit and other risks. 

Consequently, it is not practicable to estimate its 

fair value.
FINANCIAL STATEMENTS AND NOTES 111
112 

114 

116 

118 

120 

122 FINANCIAL STATEMENTS AND NOTES

MANAGEMENT’S RESPONSE

Federal Deposit Insurance Corporation

550 17th Street NW, Washington, DC 20429-9990 Deputy to the Chairman and CFO ______________________________________________________________________________________________

March 14, 2011

Mr. Steven J. Sebastian

Director, Financial Management and Assurance 

U.S. Government Accountability Office

441 G Street, NW

Washington, DC 20548 

Re: FDIC Management Response on the GAO 2010 Financial Statements Audit Report

Dear Mr. Sebastian: 

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

(GAO’s) draft report titled, Financial Audit: Federal Deposit Insurance Corporation Funds’ 2010 

and 2009 Financial Statements, GAO-11-412. We are pleased that the Federal Deposit Insurance 

Corporation (FDIC) received an unqualified opinion for the nineteenth consecutive year on the 

financial statements of its funds: the Deposit Insurance Fund (DIF) and the FSLIC Resolution Fund 

(FRF). Also, GAO reported that the FDIC had effective internal control over financial reporting and 

compliance with laws and regulations for each fund, and there was no reportable noncompliance with 

the laws and regulations that were tested. 

During the audit year, the FDIC management and staff worked diligently to resolve the material 

weakness and significant deficiency internal control issues that were reported in the 2009 audit. We 

took significant steps to strengthen controls over the loss share estimation process and the information 

systems security and will continue to make improvements in these areas in the coming audit year. Our 

dedication to sound financial management remains a top priority.

In complying with audit standards that require management to provide a written assertion about the 

effectiveness of its internal control over financial reporting, the FDIC has prepared Management’s 

Report on Internal Control over Financial Reporting (see attachment). The report acknowledges 

management’s responsibility for establishing and maintaining internal control over financial reporting 

and provides the FDIC’s conclusion regarding the effectiveness of its internal control. 

We want to thank the GAO staff for their professionalism and dedication during the audit and look 

forward to a productive and successful relationship during the 2011 audit. 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

Appendix I
FINANCIAL STATEMENTS AND NOTES 123

The Federal Deposit Insurance Corporation’s (FDIC’s) internal control over financial reporting 

is a process effected by those charged with governance, management, and other personnel, 

designed to provide reasonable assurance regarding the preparation of reliable financial statements 

in conformity with U.S. generally accepted accounting principles (GAAP), and compliance 

with applicable laws and regulations. The objective of the FDIC’s internal control over financial 

reporting is to reasonably assure that (1) transactions are properly recorded, processed and 

summarized to permit the preparation of financial statements in accordance with GAAP, and assets 

are safeguarded against loss from unauthorized acquisition, use, or disposition; and (2) transactions 

are executed in accordance with the laws and regulations that could have a direct and material 

effect on the financial statements.

Management is responsible for establishing and maintaining effective internal control over 

financial reporting. Management assessed the effectiveness of the FDIC’s internal control over 

financial reporting as of December 31, 2010, through its enterprise risk management program 

that seeks to comply with the spirit of the following standards, among others: Federal Managers’ 

Financial Integrity Act of 1982 (FMFIA); Chief Financial Officers Act (CFO Act); Government 

Performance and Results Act (GPRA); Federal Information Security Management Act (FISMA); 

and OMB Circular A-123. In addition, other standards that the FDIC considers are the 

framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission’s 

Internal Control – Integrated Framework and the U.S. Government Accountability Office’s (GAO’s) 

Standards for Internal Control in the Federal Government.

Based on the above assessment, management concluded that, as of December 31, 2010, FDIC’s 

internal control over financial reporting is effective based upon the criteria established in FMFIA.

Federal Deposit Insurance Corporation

March 14, 2011

MANAGEMENT’S REPORT ON INTERNAL CONTROL

OVER FINANCIAL REPORTING
124 FINANCIAL STATEMENTS AND NOTES

1 Amendments to prior financial reports produced a $23.1 billion net reduction in industry earnings for 2009, from an 

originally reported $12.5 billion aggregate profit to a $10.6 billion net loss. Most of the revision resulted from a $20.3 

billion increase in charges for goodwill impairment at one large institution.

2 FASB Statements 166 and 167.

Overview of the Industry

The 7,657 FDIC-insured commercial banks and 

savings institutions that filed financial reports as 

of December 31 reported $87.5 billion in net 

income for the full year 2010. This represented a 

considerable improvement over the $10.6 billion 

aggregate net loss posted in 2009.1

 But it is well 

below the record annual earnings of $145.2 

billion registered in 2006. The average return on 

assets (ROA) was 0.66 percent, up compared to a 

negative 0.08 percent in 2009. The year-over-year 

improvement in earnings was broad-based. More 

than two out of every three institutions (67.5 

percent) reported higher net income in 2010 

compared to a year earlier. More than one in five 

institutions (21 percent) reported a net loss for the 

year, but this was a significantly smaller percentage 

than in 2009, when 30.8 percent

were unprofitable.

Lower expenses for asset-quality problems and 

reduced charges for goodwill impairment were the 

principal sources of the improvement in industry 

net income. Provisions for loan and lease losses 

totaled $156.9 billion, which was $92.6 billion 

(37.1 percent) less than insured institutions 

set aside in 2009. Slightly more than half of 

all institutions (51 percent) reported reduced 

loss provisions in 2010. Charges for goodwill 

impairment totaled $1.7 billion in 2010, a decline 

of $28.7 billion compared to 2009. Additional 

support for the improvement in industry net 

income was limited by a $32.2 billion increase in 

income taxes.

Year-over-year comparisons of revenues 

are complicated by the application of new 

accounting rules to financial reporting in 

2010.2

 Implementation of the new rules led to 

the consolidation of a significant amount of 

securitized assets (primarily credit card balances) 

back onto the originating banks’ balance sheets 

in 2010. Along with the resulting increase in 

reported loan balances, there was also an impact 

from the cash flows associated with these balances. 

At institutions affected by the reporting changes, 

reported levels of interest income and expense, net 

interest income, and net charge-offs were elevated, 

while noninterest income items such as income 

from securitization activities, servicing fees, and 

trading revenues were reduced. The effects were 

evident in industry totals. Net interest income was 

$34.4 billion (8.7 percent) higher than in 2009, 

while noninterest income was $23.6 billion (9.1 

percent) lower. The change in reporting rules had 

little or no effect on net revenues. Net operating 

revenue (the sum of net interest income and total 

noninterest income) was only $10.8 billion (1.6 

percent) higher than in 2009.

The average net interest margin (NIM) improved 

to 3.76 percent from 3.47 percent in 2009, as 

average funding costs fell more rapidly than 

average asset yields. This is the highest annual 

NIM since 2002, when it reached 3.96 percent. 

A majority of institutions (57.1 percent) reported 

higher NIMs in 2010, with the largest increases 

occurring at institutions that had securitized credit 

card receivables and were affected by the new 

accounting rules. 

The decline in noninterest income reflected 

reduced servicing fees (down $13.2 billion, or 

44 percent), lower securitization income (down 

$4.3 billion, or 89.9 percent), and lower trading 

revenue (down $1.4 billion, or 5.6 percent). The 

application of new reporting rules contributed 

to these declines. Among the noninterest income 

categories that were not affected by the new rules, 

service charges on deposit accounts were $5.5 

billion (13.1 percent) lower than in 2009, gain 

on sales of loans and other assets was $3.2 billion 

(29.4 percent) lower, and investment banking 

income was $2.1 billion (17.8 percent) lower. 

Noninterest expenses fell by $12.6 billion in 2010, 

as a result of the $28.7 billion reduction in charges 

for goodwill impairment. Salaries and employee 
FINANCIAL STATEMENTS AND NOTES 125

benefits expenses increased by $5.8 billion (3.5 

percent), as the number of employees at insured 

institutions rose by 23,407 (1.1 percent). Expenses 

for premises and fixed assets were $1.0 billion (2.3 

percent) lower than in 2009.

Insured institutions charged-off $187.1 billion 

(net) in troubled loans in 2010, a $1.7 billion 

(0.9 percent) decline from 2009. This is the first 

year-over-year decline in charge-offs in four years, 

and it occurred despite a $26.6 billion (69.8 

percent) increase in reported credit card chargeoffs caused by the new reporting rules that took 

effect in 2010. Most major loan categories had 

lower charge-offs in 2010. Charge-offs of loans to 

commercial and industrial (C&I) borrowers were 

$11.2 billion (35.1 percent) lower, charge-offs of 

real estate construction and development loans 

fell by $6.8 billion (24.8 percent), and chargeoffs of non-credit card consumer loans declined 

by $6.1 billion (31.9 percent). Apart from credit 

cards, the only other major loan category that had 

increased charge-offs was real estate loans secured 

by nonfarm nonresidential properties. Net chargeoffs of these loans were $4.6 billion (54.5 percent) 

higher than in 2009.

In the twelve months ended December 31, the 

amount of loans and leases that were noncurrent 

(90 days or more past due or in nonaccrual 

status) declined by $36.4 billion (9.2 percent). 

This is the first 12-month decline in noncurrent 

loans and leases since 2005. As was the case with 

charge-offs, most major loan categories registered 

improvement in noncurrent levels. Noncurrent 

real estate construction and development loans 

declined by $20.4 billion (28.4 percent) in 

2010, while noncurrent C&I loans fell by $12.5 

billion (30.2 percent). Noncurrent residential 

mortgage loans declined by $3.4 billion (1.9 

percent). The two major loan categories where 

noncurrent balances increased in 2010 were real 

estate loans secured by nonfarm nonresidential 

properties (where noncurrent balances were up 

by $3.9 billion, or 9.2 percent) and credit cards 

(where noncurrent balances rose by $968 million, 

or 6.7 percent). The latter increase reflected the 

application of new reporting rules in 2010. 

Total assets of insured institutions increased 

by $234.2 billion (1.8 percent), in 2010. The 

increase was attributable to new reporting rules 

that caused more than $300 billion in securitized 

loan balances to be consolidated into banks’ 

balance sheets at the beginning of the year. Credit 

card balances at year end 2010 were $280.5 

billion (66.6 percent) higher than a year earlier. 

In contrast, balances in all other major loan 

categories declined during 2010. The largest 

decline occurred in real estate construction and 

development loans, where balances fell by $129.2 

billion (28.7 percent). Other large declines 

occurred in C&I loans (down $36.0 billion, or 2.9 

percent), home equity lines of credit (down $24.7 

billion, or 3.7 percent), real estate loans secured by 

nonfarm nonresidential properties (down $20.5 

billion, or 1.9 percent), and 1-4 family residential 

mortgages (down $18.2 billion, or 1 percent). 

Insured institutions’ securities holdings increased 

by $167.3 billion (6.7 percent) during the year, 

as their U.S. Treasury securities rose by $85.1 

billion (83.0 percent) and their mortgage-backed 

securities increased by $87.4 billion (6.3 percent).

Total deposits increased by $196.2 billion (2.1 

percent), as deposits in domestic offices rose by 

$176.3 billion (2.3 percent). Most of the increase 

in domestic deposits occurred in noninterestbearing accounts, which grew by $136.9 billion 

(8.8 percent). Nondeposit liabilities declined by 

$30.7 billion (1.3 percent) during the year, as 

advances from Federal Home Loan Banks fell 

by $146.7 billion (27.5 percent). Other secured 

borrowings increased by $205.6 billion, as part 

of the consolidation of securitized loan balances 

back into balance sheets at the beginning of 2010. 

Total equity capital, including minority interests 

in consolidated subsidiaries, increased by $68.8 

billion (4.8 percent) in 2010.

The number of institutions on the FDIC’s 

“Problem List” increased from 702 to 884 during 

2010. This is the largest number of “Problem” 

institutions since March 31, 1993, when there were 

928. Total assets of “Problem” institutions declined 

from $402.8 billion to $390.0 billion. During 

2010, 157 insured institutions with $92.1 billion in 

assets failed and were resolved by the FDIC.