Mission

The Federal Deposit Insurance Corporation

(FDIC) is an independent agency created by

the Congress that maintains the stability 

and public confidence in the nation’s financial

system by insuring deposits, examining 

and supervising financial institutions, and

managing receiverships.

In its unique role as deposit insurer of banks

and savings associations, and in cooperation

with the other state and federal regulatory

agencies, the Federal Deposit Insurance

Corporation (FDIC) promotes the safety and

soundness of the U.S. financial system and the

insured depository institutions by identifying,

monitoring and addressing risks to the deposit

insurance funds.

The FDIC promotes public understanding 

and the development of sound public policy

by providing timely and accurate financial

and economic information and analyses. It

minimizes disruptive effects from the failure

of banks and savings associations. It assures

fairness in the sale of financial products and

the provision of financial services.

The FDIC’s long and continuing tradition 

of excellence in public service is supported 

and sustained by a highly skilled and diverse

workforce that continuously monitors and

responds rapidly and successfully to changes

in the financial environment.
Vision

The FDIC is a leader in developing and 

implementing sound public policies, identifying

and addressing new and existing risks in 

the nation’s financial system, and effectively 

carrying out its insurance, supervisory, and

receivership management responsibilities.

Integrity 

FDIC employees adhere to the highest ethical

standards in the performance of their duties

and responsibilities.

Competence

The FDIC maintains a highly skilled, dedicated

and diverse workforce.

Teamwork 

FDIC employees work cooperatively with 

one another and with employees in other 

regulatory agencies to accomplish the

Corporation’s mission.

Effectiveness 

The FDIC responds quickly and successfully to

identified risks in insured financial institutions

and in the broader financial system.

Financial Stewardship

The FDIC acts as a responsible fiduciary, 

consistently operating in an efficient and

cost-effective manner on behalf of insured

financial institutions and other stakeholders.

Fairness

The FDIC treats all employees, insured 

financial institutions, and other stakeholders

with impartiality and mutual respect.

●

●

●

Values

The FDIC and its employees have a long and continuing tradition of distinguished public service.

Six core values guide FDIC employees as they strive to fulfill the Corporation’s mission and vision:

●

●

●
February 14, 2005

Sirs,

In accordance with:

● the provisions of section 17(a) of the Federal Deposit Insurance Act,

● the Chief Financial Officers Act of 1990, Public Law 101-576, and

● the Government Performance and Results Act of 1993,

the Federal Deposit Insurance Corporation is pleased to submit its 

2004 Annual Report.

Sincerely,

Donald E. Powell

Chairman

The President of the United States

The President of the United States Senate

The Speaker of the United States House of Representatives

Federal Deposit Insurance Corporation

550 17th St. NW Washington DC, 20429 Office of the Chairman
Message from the Chairman 4

Message from the Chief Financial Officer 6

I. Management’s Discussion and Analysis 8

The Year in Review 8

Insurance 8

Supervision and Consumer Protection 12

Receivership Management 19

Effective Management of Strategic Resources 20

II. Financial Highlights 24

Deposit Insurance Fund Performance 24

Operating Expenses 24

Investment Spending 25

III. Performance Results Summary 28

Summary of 2004 Performance Results by Program 28

2004 Budget and Expenditures by Program 30

Performance Results by Program and Strategic Goal 31

Multi-Year Performance Trend 36

Program Evaluation 41

IV. Financial Statements and Notes 42

Bank Insurance Fund (BIF) 42

Savings Association Insurance Fund (SAIF) 60

FSLIC Resolution Fund (FRF) 80

GAO’s Audit Opinion 94

Management’s Response 99

Overview of the Industry 100

V. Management Controls 102

Material Weaknesses 102

High Vulnerability Issues 103

Matters for Continued Monitoring 103

Internal Controls and Risk Management Program 105

VI. Appendixes 106

A. Key Statistics 106

B. More About the FDIC 118

C. Office of Inspector General’s Assessment of the 

Management and Performance Challenges Facing the FDIC 126
1

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

2004 Annual Report. During the past year, we continued to aggressively pursue

our three major priorities: promoting the stability of the nation’s financial system,

developing and articulating sound policy positions, and meeting our stewardship

obligations to the deposit insurance funds.

Meeting the FDIC’s mission is an increasingly complex responsibility, but the FDIC

made exceptional progress during 2004. I am proud of the dedication and hard

work of the FDIC’s employees over the past year.

I am pleased to highlight in this report some of our major accomplishments in

2004:

● We worked to ensure that adequate capital standards would be maintained 

in the new Basel Capital Accord.

● We continued our efforts to reduce regulatory burden on financial institutions 

as mandated by the Economic Growth and Regulatory Paperwork Reduction 

Act of 1996 (EGRPRA). With other federal bank and thrift regulatory agencies,

we solicited and received over 700 comments on consumer protection 

and deposit-related regulations, and we requested comment on proposed 

changes to the FDIC’s Community Reinvestment Act regulations.

● We aggressively refined our supervisory strategies consistent with changes 

to the Bank Secrecy Act included in the USA PATRIOT Act. The FDIC, the 

Department of Treasury's Financial Crimes Enforcement Network (FinCEN), 

and the other federal banking agencies also entered into an information 

sharing Memorandum of Understanding to enhance communication and 

coordination to help financial institutions identify, detect and interdict terrorist 

financing and money laundering.

● We funded 17 research proposals to produce the first working papers to be 

published by our new Center for Financial Research. 

Message 

from the 

Chairman

Donald E. Powell 

James Kegley

Our Priorities

★ Stability

★ Sound Policy

★ Stewardship
5

● We reached approximately 300,000 consumers with our Money Smart financial

education program, resulting in the formation of over 40,000 new banking 

relationships, and expanded our Money Smart program alliance to include five

Hispanic organizations. In addition, we released the Money Smart curriculum 

in an interactive computer-based instruction format. The Money Smart

curriculum is a training program to help adults outside the financial mainstream

enhance their money-management skills and establish positive banking 

relationships.

● We established a Resolutions Policy Committee to develop a comprehensive 

strategy and action plan for handling a large-bank failure in the least costly 

manner, maximizing net recoveries and minimizing any disruption.

● We made significant progress toward the completion of a new Web-based 

Central Data Repository (CDR) for Call Reporting and other regulatory reporting, 

in cooperation with our Federal Financial Institutions Examination Council 

(FFIEC) partners. Targeted for implementation in 2005, the CDR will employ 

state-of-the-art technology and the XBRL (Extensible Business Reporting 

Language) data standard. This system will further enhance the FDIC’s ability 

to provide high-quality, timely data about the banking industry to regulators, 

financial institutions and the public.

● We continued to realign our workforce to meet future workload requirements. 

The 2005 budget approved by the Board reflects a reduction of 674 authorized

positions over the next year.

● A new Corporate Employee Program was announced that will allow us to 

create a smaller, more flexible workforce in the future.

● We initiated a two-year effort to improve our information technology (IT) 

program by modernizing our IT infrastructure and applying an enterprise

architecture approach to guide future IT decision-making. 

In accordance with the Reports Consolidation Act of 2000, the FDIC completed

an assessment of the reliability of the performance data contained in this report.

No material inadequacies were found and the data is considered to be complete

and reliable.

I am very proud of our achievements over the past year and look forward 

to continued successes next year. The FDIC stands firm in its commitment 

to promoting stability, pursuing sound policy and meeting our stewardship

responsibilities for the deposit insurance funds.

It is a privilege and an honor to serve as Chairman of the FDIC, and I look 

forward to the many opportunities that lie ahead.

Sincerely,

Donald E. Powell
1

Message 

from the 

Chief 

Financial

Officer

Steven O. App

I am pleased to report that the funds

managed by the FDIC maintained their

strong financial condition in 2004 and to

highlight some of our accomplishments 

in this area.

The U.S. Government Accountability Office

(GAO) again issued unqualified audit opinions

for all three funds administered by the

Corporation (Bank Insurance Fund, Savings

Association Insurance Fund, and the Federal

Savings and Loan Insurance Corporation

(FSLIC) Resolution Fund). This marks the

13th consecutive year that we received

unqualified opinions, and demonstrates 

our continued dedication to sound financial management and the reliability of the

financial data upon which we make critical decisions. I would like to extend my

sincere appreciation to the many individuals whose hard work allowed the FDIC

to achieve this milestone.

Financial highlights during 2004 include:

● The Bank Insurance Fund (BIF) increased by $1.0 billion to $34.8 billion, and 

the Savings Association Insurance Fund (SAIF) increased by $480 million 

to $12.7 billion, compared to increases of $1.7 billion and $493 million 

respectively, in 2003.

● Comprehensive income for BIF was $1 billion. This was substantially lower 

than the $1.7 billion reported last year. This reduction was primarily due to a 

significant deceleration in the rate at which the provision for insurance losses 

declined during 2004 when compared to 2003. For 2003, the reduction in the 

provision for insurance losses added $931 million to comprehensive income, 

while for 2004 it added only $269 million – a $662 million difference. Earnings 

on U.S.Treasury obligations were also $80 million lower than in 2003. 

● Comprehensive income for SAIF was $480 million. This was slightly lower 

than the $493 million reported last year. This reduction was primarily due 

to lower earnings on U.S. Treasury obligations of $6 million in 2004 compared 

to 2003. 

● Both the BIF and the SAIF reported unrealized losses on available-for-sale 

securities in 2004 of $112 million and $36 million, respectively. The deposit 

insurance funds experienced such unrealized losses two years in a row. 

These unrealized losses were largely due to the fact that U.S.Treasury 

yields generally increased throughout much of the latter half of 2003 and 

2004, after dropping sharply in 2002 and early 2003. Despite the modest 

unrealized losses in 2004, cumulative unrealized gains in the funds remained 

high at $690 million in the BIF and $238 million in the SAIF.

We continued our efforts to reduce operating costs in 2004. The Board of Directors

approved a 2005 Corporate Operating Budget that was virtually unchanged from

the 2004 Corporate Operating Budget, despite absorbing higher salary and 

benefits cost and inflation in non-personnel costs. Total estimated 2005 spending

(including 2005 spending for previously approved multi-year investment projects)

is estimated to be about $36 million or 2.9 percent lower than in 2004. The

FDIC’s Capital Investment Review Committee (CIRC) also continued to focus 
7

on sound development of large-scale IT-related projects as well as improvements

in the management of investment spending. Several major IT projects were 

re-baselined in 2004, and the Corporation is committed to completing these 

projects within their revised schedules and budgets. 

The FDIC also made considerable progress in 2004 in enhancing its information

security programs, taking positive actions in a number of key security program

areas. The FDIC provided security awareness training to its employees and 

contractors, and is working diligently to address recent and emerging IT security

standards and guidelines developed by the National Institute of Standards and

Technology (NIST). Information technology and systems security remain high 

priorities at the FDIC, and we are continuously working to strengthen controls in

these areas. The Office of Inspector General (OIG) recently completed its annual

evaluation of information systems security at the FDIC, as mandated by the

Federal Information Security Management Act of 2002, and identified no 

significant deficiencies that warrant consideration as potential material 

weaknesses.

The FDIC evaluated its risk management and internal control systems in 

accordance with the reporting requirements of the Federal Managers’ Financial

Integrity Act of 1982 (FMFIA) and GAO internal control standards. We have 

identified no material weaknesses that would affect the accuracy of the financial

statements. This report describes our continuing efforts to provide timely and

useful performance information to FDIC managers, OMB, and the Congress.

Based on these internal management evaluations, and in conjunction with the

results of GAO’s independent financial statements audits, I can certify with 

reasonable assurance that the FDIC's risk management and internal control

systems, taken as a whole, are in conformance with the standards prescribed 

by GAO and that we are in compliance with the requirements of FMFIA. 

In 2005, the FDIC will continue to focus on effective cost management, produce

timely and reliable financial information, and maintain a strong enterprise-wide

risk management and internal control program. 

Sincerely,

Steven O. App
1

The Year in Review

The year 2004 marked continued

changes within the FDIC, but 

maintaining stability of the nation’s

financial services industry remained

a primary focus. The FDIC continued

to lead and participate in many 

interagency initiatives in an effort 

to meet the demands of an ever

evolving financial services industry.

During 2004, the FDIC continued 

its emphasis on reducing regulatory

burden, and also enhanced its 

examination program while promoting

measures to improve its efficiency.

Studies were conducted in various

areas, identifying risks and promoting

best practices among the regulatory

and banking industries. In 2004, the

FDIC actively contributed to efforts

to address money laundering and

terrorist financing risks as well 

as other financial crimes such as

identity theft.

Highlights of the Corporation’s 2004

accomplishments are presented in

this section for each of the FDIC’s

three major business lines – Insurance,

Supervision and Consumer Protection,

and Receivership Management – as

well as its program support functions.

Insurance

The FDIC insures bank and savings

association deposits. As insurer, the

FDIC must continually evaluate and

effectively manage how changes in

the economy, the financial markets

and the banking system affect the

adequacy and the viability of the

deposit insurance funds.

I. Management’s

Discussion

and Analysis

Deposit Insurance Reform

The FDIC again gave priority attention

to enactment of comprehensive

deposit insurance reform legislation

in 2004. 

The FDIC’s reform recommendations

include: ● Merging the Bank Insurance Fund

(BIF) and the Savings Association 

Insurance Fund (SAIF).

● Granting the FDIC’s Board of

Directors the flexibility to manage 

a combined deposit insurance 

fund. Under the present system, 

statutorily mandated methods of 

managing the size of the BIF and 

SAIF may cause large premium 

swings and could force the FDIC 

to charge the highest premiums 

during difficult economic times 

when the industry can least afford 

it. Currently, safer institutions 

subsidize riskier institutions 

unnecessarily, while new entrants 

and growing institutions avoid 

paying premiums. To address these

problems, the FDIC recommended

that Congress give the Board of 

Directors the discretion to: ● Manage the combined fund 

within a range.

● Price deposit insurance 

according to risk at all times 

for all insured institutions.

● Grant a one-time initial 

assessment credit to 

recognize institutions’ past 

contributions to the deposit 

insurance funds and create 

an ongoing system of 

assessment credits and 

rebates to prevent the fund 

from growing too large.

● Indexing the level of deposit insurance coverage to ensure that basic 

account coverage is neither eroded 

over time by inflation nor made

subject to irregular adjustments.
The House passed H.R. 522, the

Federal Deposit Insurance Reform

Act of 2003, on April 22, 2003, by 

a vote of 411 to 11. Although the

Senate Banking Committee held a

hearing on deposit insurance reform

in February 2003, it did not act on 

a deposit insurance bill before the

108th Congress adjourned.The FDIC

provided information and analysis 

to Congress in support of deposit

insurance reform legislation. 

Support was obtained for a proposed

assessment credit and rebate 

system as well as a new deposit

insurance pricing system. Enactment

of deposit insurance reform will

remain a priority of the FDIC during

2005.

Improvements to the FDIC’s 

Loss Reserve Methodology

Discrepancies between projected

failed assets and actual assets 

and projected and actual losses

at failed financial institutions were

reviewed at Financial Risk Committee

meetings in March and September.

No deficiencies in the methodology

for projecting losses were noted.

During 2004, enhancements to 

the FDIC’s reserving process and

methodology were also implemented,

in accordance with recommendations

from a comprehensive 2003 study.

The Financial Risk Committee adopted

new guidelines for deviating from

actual historical failure rates and

enhanced coefficients contained in

the research model which is used to

develop loss given failure estimates.

In addition, a working prototype 

of an integrated fund model was

developed to better measure 

and manage risk to the deposit 

insurance funds.

New International Capital

Standards

The FDIC continues to actively 

participate in efforts to align capital

standards with advances in financial

institutions’ risk measurement 

and management practices, while 

ensuring that such institutions and

the industry as a whole maintain

adequate capital and reserves. 

During 2004, the FDIC was active 

on a number of global and domestic

supervisory and policy groups 

and subgroups including the Basel

Committee on Banking Supervision

(BCBS), the Capital Task Force, and

the Accord Implementation Group.

The FDIC also participated in various

U.S. regulatory efforts aimed at

interpreting international standards

and establishing sound policy and

procedures for implementing these

standards.

The BCBS published the “International

Convergence of Capital Measurement

and Capital Standards” in June 2004,

which is more commonly referred 

to as “Basel II” or the “Revised

Framework.” These broad international

standards will provide the underpinnings for a U.S. revised capital rule,

which is currently anticipated to be

finalized by domestic bank and thrift

regulatory authorities in mid-2006 

for implementation in January 2008.

Ensuring the adequacy of insured

institutions’ capital under Basel II

remains a key objective for the FDIC.

In 2004, the FDIC actively participated

in domestic and international policy

and implementation efforts to ensure

these new rules are designed 

appropriately. These efforts included

the development of examination

guidance, which is intended to 

provide the industry with regulatory

perspectives for implementation,

and the performance of a fourth

quantitative impact study (QIS)

begun in 2004 to assess the potential

impact of the Revised Framework 

on financial institution and industrywide capital levels. 

The FDIC invested significant

resources on several fronts in 2004

to ensure that the Revised Framework

will be compatible with the

Corporation’s roles as both deposit

insurer and supervisor. Significant

work was performed, both internationally and domestically, to assure

that Basel II will be implemented

efficiently, that effective supervisory

oversight will continue, and that

these new rules will not create 

unintended and potentially harmful

consequences. To that end, the 

FDIC began to identify, hire and train

personnel to ensure that a strong

infrastructure will exist to meet the

many challenges posed by adoption

of the complex risk management

standards put forth under Basel II.

Regulatory Burden Reduction

Initiatives 

During 2004, under the leadership 

of Vice Chairman John Reich, the

federal bank and thrift regulatory

agencies continued a cooperative

three-year effort to review all of their

regulations (129 in all) that impose

some burden on the industry. 

The purpose of the review, which 

is mandated by the Economic

Growth and Regulatory Paperwork

Reduction Act of 1996 (EGRPRA), 

is to identify and eliminate any 

outdated, unnecessary or unduly 

burdensome regulatory requirements,

while ensuring safety and soundness

and consumer protections remain

strong.

9 
10

For the purposes of this review, 

the agencies categorized their 

regulations into 12 separate groups.

Every six months, new groups 

of regulations are published for 

comment, giving bankers, community

groups and others an opportunity 

to identify regulatory requirements

they believe are no longer needed,

as well as consumer protections that

must be preserved. Comments on

the first group of regulations, which

included Applications and Reporting,

Powers and Activities and International

Banking, were solicited in 2003, 

and were analyzed during 2004.

The agencies issued notices for

comment on two more groups of

regulations in 2004:

● Lending-related consumer 

protection regulations, which 

include Truth-In-Lending 

(Regulation Z), Equal Credit 

Opportunity (Regulation B), 

Home Mortgage Disclosure Act 

(HMDA); and 

● Deposit-related and other 

consumer protection regulations, 

which include Privacy of Consumer

Financial Information, Truth-InSavings, and Deposit Insurance 

Coverage. 

The agencies received over 700

responses to the request for 

comments on these two groups 

of regulations.

The agencies also held six outreach

meetings in 2004, three for bankers

and three for consumer and community groups. These outreach sessions

were intended to increase industry

awareness of the EGRPRA project

and obtain feedback.

The FDIC and the other financial 

regulatory agencies undertook several

initiatives in 2004 that are expected

to relieve regulatory burden, improve

operational efficiencies of banks, or

assist financial institutions in assessing potential risk. They published

additional interagency guidance and

examination procedures on the USA

PATRIOT Act. The FDIC also sought

comments on proposed changes 

to its Community Reinvestment 

Act regulations and its regulations

governing certain international 

activities. (Final regulations in both

areas are expected in early 2005.)

The FDIC also redesigned the 

EGRPRA Web site to make it more

comprehensive and user-friendly 

and redesigned its Financial Institution

Letter (FIL) format to make it easier

for financial institutions to identify

whether the subject of the FIL

applies to their specific institution

and the area of the institution to

which the FIL is most relevant. 

In 2005, the agencies will continue

to analyze the comments and other

feedback that have been received

and expect to propose legislative 

or regulatory changes, where 

appropriate, to address certain 

regulatory burdens and needed 

consumer protections.

Center for Financial Research

The Corporation established the

FDIC Center for Financial Research

(CFR) in late 2003 to promote

research that provides meaningful

insights regarding developments 

in deposit insurance, the financial

sector, prudential supervision, risk

measurement and management, 

regulatory policy and related topics

that are of interest to the FDIC, the

financial services industry, academia

and policymakers. The CFR is a 

partnership between the FDIC and

the academic community with 

prominent scholars actively engaged

in administering and carrying out its

research program. The CFR carries

out its mission through an agenda 

of research, analysis, forums and

conferences that encourage and

facilitate an ongoing dialogue 

incorporating industry, academic 

and public-sector perspectives.

The CFR supports high-quality original

research by sponsoring relevant

research program lines and soliciting

rigorous analysis of the issues 

within five program areas. These

programs benefit from the leadership of program coordinators who 

are drawn largely from the outside

academic community. Input is 

also obtained from six prominent

economists who serve as Senior

Fellows. The CFR sponsors a Visiting

Research Fellows Program to 

provide support for in-residence

scholars for defined time periods. 

In 2004, the CFR funded 17 research

proposals, the results of which 

will be published in the new CFR

Working Papers Series. The CFR

also engaged leading scholars in

banking and finance to collaborate

with FDIC staff on subjects of 

mutual interest.

The CFR and The Journal for 

Financial Services Research (JFSR)

sponsored their fourth annual

research conference, “Risk Transfer

and Governance in the Financial

System,” in September 2004. 

The conference, which included 

21 presentations selected from more

than 60 submissions, attracted more

than 100 researchers and included

both domestic and international 

participants. The CFR held two 

workshops during the year for authors

to present their interim results on

CFR-sponsored research. 
11 

Identifying and Addressing 

Risks to the Insurance Funds

The FDIC prepares summary analyses

each quarter on the condition of

large insured financial entities, based

primarily on information provided 

by their primary Federal regulators.

These analyses assist the FDIC in

identifying risk trends and potential

exposure to the insurance funds.

Identified risks are highlighted in 

various reports and communicated

throughout the Corporation in 

both written format and by oral 

presentations. 

All institution-specific concerns 

identified through this ongoing 

analytical process in 2004 were

referred to FDIC regional offices 

for appropriate follow-up action. 

In most cases, these concerns were

resolved in connection with the 

institution's primary Federal regulator.

The FDIC also conducted numerous

outreach activities during 2004 on

matters of economic and banking

risk analysis with community groups,

other regulators, and the banking

industry. Among them were a series

of internal and public roundtables

that included a 2004 banking outlook

roundtable in New York City, our

third annual Washington, DC 

economic outlook roundtable, and 

an economics luncheon featuring 

Dr. Catherine Mann of the Institute

for International Economics.

The Corporation also released four

issues of FDIC Outlook during the

year, along with a number of FYI

electronic bulletins. Featured Outlook

articles addressed topics such as

emerging risks in mortgage and home

equity lending, trends in commercial

lending, and the challenges to banks

facing rural depopulation. FYI reports

published during the year featured

an FDIC assessment of banking

industry exposure to debt obligations

of government-sponsored enterprises

(GSEs) and a series of articles on the

evolving nature of banking in America,

including a look at the changing role

of community banks, bank branching

trends, and challenges from changing

payment systems. Four quarterly

issues of FDIC State Profiles were

released for each state during 2004,

and the results of those reports were

discussed at regularly scheduled

press briefings.

FFIEC Central Data Repository

The FDIC continued to provide 

leadership for an interagency 

initiative to implement the Central

Data Repository (CDR). This effort

includes the Federal Reserve Board

and the Office of the Comptroller of

the Currency. The CDR is designed

to consolidate the collection, validation

and publication of quarterly bank

financial reports. The CDR will be

accessible to regulators, financial

institutions and the public. This 

initiative is being undertaken in 

cooperation with the Call Report

software vendors and the banking

industry, and will employ new 

technology that uses XBRL (Extensible

Business Reporting Language) data

standard to streamline the collection,

validation and publication of Call

Report data. Originally scheduled 

for implementation in October 2004,

rollout of the CDR was postponed to

address industry feedback and allow

more time for system testing and

enrollment of financial institutions.

As a result, a two-phased implementation of the CDR during the second

and third quarters of 2005 is now

planned. 

Risk Analysis Center

The Risk Analysis Center (RAC) 

was established in 2003 to provide

information about current and

emerging supervisory issues. The

RAC brings together economists,

bank examiners, financial analysts

and others to monitor and analyze

economic, financial, regulatory and

supervisory trends, and their potential

implications for the continued financial

health of the banking industry and

the deposit insurance funds.

Comprehensive solutions are 

developed to address risks identified

Members of the RAC Management Committee and Liaisons –

Seated (l to r): 

Miguel Browne, Steve Fritts, Michael Jackson, and Don Inscoe.

Standing (l to r) :

Bill Stark, Jim Meyer, Sylvia Plunkett, and Tom Dujenski. 
12

during the process. Guided by the

FDIC’s National Risk Committee and

the RAC Management Committee,

the RAC serves as a clearinghouse

for information generated by the

FDIC’s six regional offices and 

sponsors a number of projects

involving risk-related issues. 

Two initiatives were implemented 

in 2004 to improve the dissemination

of risk-related information. First, the

Supervisory Discussion Room was

initiated to provide interactive 

nationwide audio and video-conferences on various topics. Each session

includes a presentation on a bank

supervision matter. Second, the

Examiner Forum was developed in

conjunction with the Field Supervisor

(FS) Council to increase examiner

awareness of the RAC and to share

information about emerging issues

among the field examination staff.

Both initiatives provide examiners an

opportunity to exchange information

across regions and with technical

specialists in the Washington office. 

RAC activities also include regular

monitoring and analysis of economic

and financial developments and 

communication of these issues with

FDIC staff and management. Staff

conducts a weekly conference call 

to discuss recent developments, 

and daily Economic Data Releases 

are sent by email to FDIC subscribers

summarizing intra-day economic

news. The RAC website also serves

as a clearinghouse for internal 

analyses of emerging risks. Initial

findings on emerging issues are

often followed by more in-depth

analysis in formal RAC projects.

Resolving Institution Failures

See Receivership Management

Section (page 19)

Supervision and 

Consumer Protection

Supervision and consumer protection

are cornerstones of the FDIC’s

efforts to ensure the stability of 

and public confidence in the nation’s

financial system. At year-end 2004,

the Corporation was the primary 

federal regulator for 5,272 FDICinsured, state-chartered institutions

that are not members of the Federal

Reserve System (generally referred

to as “state non-member” institutions).

Through safety and soundness, 

consumer compliance and Community

Reinvestment Act (CRA) examinations

of these FDIC-supervised institutions,

the FDIC assesses their operating

condition, management practices

and policies, and their compliance

with applicable laws and regulations.

The FDIC also educates bankers 

and consumers on matters of interest

and addresses consumers’ questions

and concerns.

Safety and Soundness

Examinations 

During 2004, the Corporation 

conducted all 2,515 statutorily

required safety and soundness

examinations. The number and 

total assets of FDIC-supervised 

institutions identified as “problem”

institutions (defined as having a 

composite CAMELS1

rating of “4” 

or “5”) decreased during 2004. As 

of December 31, 44 institutions 

with total assets of $5.3 billion 

were identified as problem institutions

compared to 73 institutions 

with total assets of $8.2 billion on

December 31, 2003. These changes

represent a decrease of 39.7 percent

and 35.4 percent, respectively, in 

the number and assets of problem

institutions. During 2004, 57 institutions were removed from problem

institution status due to composite

rating upgrades, mergers, consolidations or sales, and 28 were newly

identified as problem institutions. 

The FDIC is required to conduct 

follow-up examinations of all 

designated problem institutions within

12 months of the last examination. As

of December 31, 2004, all follow-up

examinations for problem institutions

had been performed on schedule.

Compliance and Community

Reinvestment Act (CRA)

Examinations 

The FDIC conducted 1,459 

comprehensive compliance-CRA

examinations, 673 compliance-only

examinations,2 and four CRA-only 

examinations in 2004, compared 

to 1,610 joint compliance-CRA 

examinations, 307 compliance-only

examinations, and two CRA-only 

examinations in 2003. The FDIC 

conducted all joint and comprehensive

examinations within established time

frames. As of December 31, 2004,

five institutions were assigned a 

“4” rating for compliance, and no

institutions were rated “5.” Of 

the five institutions rated “4” as of

December 31, 2004, four are within

the 12 month window following

issuance of an enforcement action.

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

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

“5” (weakest).

Compliance-only examinations are conducted for most institutions at or near the mid-point between joint complianceCRA examinations under the Community Reinvestment Act of 1977, as amended by the Gramm-Leach-Bliley Act of 1999. 

CRA examinations of financial institutions with aggregate assets of $250 million or less are subject to a CRA examination no

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

receive a CRA rating of “Satisfactory.”

1

2
13 

Of these four, two entered into

Memorandums of Understanding

with the FDIC and two are subject 

to outstanding Cease and Desist

Orders. A Cease and Desist Order

for the fifth institution will likely be

issued during the first quarter of

2005.

Examination Program Efficiencies 

The FDIC continued in 2004 to

implement measures to improve

examination efficiency by maximizing

the use of risk-focused examination

procedures at well-managed banks.

Based on experience with the

Maximum Efficiency Risk-Focused

Institution Target (MERIT) Program

implemented in 2002, the FDIC

raised the threshold for well-rated,

well-capitalized banks qualifying 

for streamlined examinations under

the MERIT Program to $1 billion, up

from $250 million. Use of the MERIT

Program allows the FDIC to direct

more examination resources to 

institutions posing the most risks 

to the insurance funds. The FDIC

also implemented more risk-focused

examinations for the trust and 

information technology specialty areas.

The FDIC continued to emphasize

the revised compliance examination

approach implemented during the

second half of 2003. During 2004,

the FDIC convened six focus groups

with bankers across the country 

to discuss their experience with the

revised compliance examination

process. The bankers strongly 

supported the new process, reporting

that it had resulted in a more efficient

examination and that compliance

examiners provided more constructive

feedback than in the past.

In keeping with other recent strategic

initiatives to enhance supervisory

processes, the FDIC conducted a

pilot program to test a new approach

to bank supervision. The primary 

purpose of the “relationship manager

program” pilot was to determine 

the extent to which designation of 

a relationship manager for each bank

would enhance risk-focused assessments and improve communications

with financial institutions.

The pilot explored alternatives to the

traditional point-in-time examination

by allowing supervisory activities to

be conducted over the appropriate

12- or 18-month supervisory cycle at

selected institutions, based on their

risk profiles. Relationship managers

developed supervisory plans for their

designated banks and served as the

institution's local primary point-ofcontact. Benefits of the pilot included

ongoing “real time” assessments,

as well as improved communications

with financial institutions. Preliminary

results of the pilot were favorable.

Results will be further evaluated 

in 2005 to determine the feasibility

of implementing some or all aspects

of the program nationwide.

New Supervisory Journal

The FDIC released in June the 

inaugural issue of Supervisory Insights,

a professional journal providing a

forum for discussing how bank 

regulation and policy are put into

practice in the field, sharing best

practices, and communicating about

the emerging issues bank supervisors

are facing. A second issue was 

published in December. Supervisory

Insights is available on the FDIC’s

internal and external Web sites. 

The journal, which will be published

twice yearly, includes regular features,

such as “Accounting News” and

“From the Examiner's Desk,” as

well as articles discussing areas 

of current supervisory focus at 

the FDIC. 

2004 2003 2002

Safety and Soundness:

State Nonmember Banks 2,276 2,182 2,290

Savings Banks 236 231 229

Savings Associations 0 0 0

National Banks 0 5 10

State Member Banks 3 3 5

Subtotal - Safety and Soundness Examinations 2,515 2,421 2,534

CRA/Compliance Examinations:

Compliance-Community Reinvestment Act 1,459 1,610 1,334

Compliance-only 673 307 493

CRA-only 4 2 13

Subtotal CRA/Compliance Examinations 2,136 1,919 1,840

Specialty Examinations:

Trust Departments 534 501 524

Data Processing Facilities 2,570 2,304 1,681

Subtotal-Specialty Examinations 3,104 2,805 2,205

Total 7,755 7,145 6,579

FDIC Examinations 2002-2004
14

Shared National Credit

Modernization

The Shared National Credit (SNC)

program is an interagency effort

designed to provide a review and

credit quality assessment of many 

of the largest and most complex

(syndicated) bank credits. The 

purpose of the program is to gain

efficiencies and consistencies in the

review of credits shared by multiple

institutions under a formal lending

agreement. The program is governed

by an interagency agreement between

the Federal Reserve Board, the FDIC,

and the Office of the Comptroller 

of the Currency (OCC). 

During 2004, the agencies initiated 

a SNC Data Collection Modernization

project (SNC Modernization). The

project seeks to enhance and streamline this effective supervision program

by standardizing the SNC data 

collection system, applying more

advanced credit risk analytics and

benchmarking techniques across

bank portfolios, and providing 

participating banks with feedback 

on their SNC portfolios across those

metrics. In December, the agencies

published a Notice for Public Comment

in the Federal Register requesting

the industry's feedback on the SNC

Modernization project. The notice

describes the changes to the 

reporting system the agencies

contemplate and identifies new data

elements the agencies propose to

collect. In the notice, the agencies

present a series of questions to elicit

comment on the expanded program

and to help the agencies refine 

the design of the expanded data 

collection system.

Homeland Security 

The financial sector is a critical 

component of the infrastructure 

in the United States, and the FDIC

has taken a leadership role in 

assisting part of the financial sector

in preparing for emergencies. As a

member of the Financial and Banking

Information Infrastructure Committee

(FBIIC), the FDIC sponsored a series

of outreach meetings in 21 cities

across the United States in 2004 

on Protecting the Financial Sector: 

A Public and Private Partnership.

These meetings provided financial

sector leaders with the opportunity

to communicate with senior government officials, law enforcement

members, and emergency management and private sector leaders

about protecting the financial sector.

Additional outreach meetings will 

be scheduled for 2005.

Bank Secrecy Act

The FDIC is also fully committed 

to assisting in efforts designed to

thwart the inappropriate use of the

banking system through activities

conducted by criminals and terrorists.

Our supervisory program, in conjunction with strong law enforcement

efforts, creates an environment

where criminals and terrorists who

use the U.S. financial system to 

fund their operations will risk being

discovered. 

Since the passage of the USA 

PATRIOT Act (Uniting and Strengthening America by Providing Appropriate

Tools Required to Intercept and

Obstruct Terrorism Act of 2001), 

the FDIC has been actively engaged

in a number of Bank Secrecy Act

(BSA), anti-money laundering (AML),

and counter-financing of terrorism

(CFT) initiatives. During the past

year, the FDIC contributed to joint

industry and interagency working

groups for the development of rules

and interpretive guidance; incorporated

rules and guidance into examination

procedures and industry resources;

refined the process for referring 

BSA violations and other significant

matters to the U.S.Department 

of the Treasury’s FinCEN; assisted 

in global AML and CFT efforts; 

dedicated more staff to BSA/AML

oversight; provided BSA/AML/CFT

training to all risk management 

professionals; and participated in

numerous industry outreach sessions.

In September 2004, the FDIC, 

the other Federal banking agencies,

and FinCEN entered into an 

information-sharing Memorandum 

of Understanding to enhance 

communication and coordination 

to help financial institutions identify,

detect, and interdict terrorist financing

and money laundering. The FDIC

also issued 20 formal actions and

entered into 83 informal agreements

that contained provisions regarding

BSA compliance. 

International Stability

The FDIC serves as a member of 

the Consultative Group (CG) with

respect to Middle East North Africa

Partnership for Financial Excellence

(PFE) initiative sponsored by the

State Department (State) and the

Department of the Treasury (Treasury).

Under the PFE, the federal banking

agencies in the U.S. (the FDIC, the

Federal Reserve and the OCC) are

working with Treasury, State and 

the U.S. Agency for International

Development (USAID) in developing

a training initiative to assist in the

development of bank supervision 
15 

in the Middle East and North Africa

(MENA) region. The CG consists 

of representatives from the bank

supervisory bodies in the MENA

region, training institutions and banker

associations in that region, and the

U.S. supervisory and regulatory

community. The CG serves as the

advisory body and coordinating entity

to facilitate the design, development

and implementation of the training

initiative. The objective of this 

initiative is to help foster economic

growth in the region through the

implementation of sound financial

supervisory systems. The federal

banking agencies are delivering 

technical assistance programs to

meet needs in the MENA region.

The FDIC is scheduled to deliver

training focused on bank supervision

and resolutions in 2005. 

As a member of the Association 

of Supervisors of Banks of the

Americas (ASBA) Strategic Planning

Implementation Committee, the

FDIC helped develop specific action

plans for ASBA’s 2004 – 2008 strategic

plan. This plan will help ASBA

deliver more relevant and timely 

support to its member countries. The

strategic plan is focused on ensuring

ASBA member countries effectively 

implement legal and regulatory

frameworks, as well as bank 

supervisory policies, procedures 

and programs that are in line with

the Basel core principles. 

The FDIC fulfilled 16 technical 

assistance missions in 2004.

Beneficiaries of these missions

included Morocco, Kyrgyz Republic,

Iraq, Georgia, Russia, Jordan,

Argentina, Serbia, Romania, several

countries in Latin America, and 

countries involved in the Partnership

for Financial Excellence Program in

the Middle East and North Africa.

In 2004, the FDIC also held 51 

meetings with representatives from

foreign countries. The visitors usually

represented a country's central bank

or deposit insurance agency. The

most frequent visitors were: China (7),

Korea (6), Russia (4), Indonesia (3),

Jamaica (3), Taiwan (3), and Japan (3).

Accounting Policy

During 2004, the FDIC was active 

in addressing several complex

accounting issues of interest to

depository institutions. In February,

the FDIC, in conjunction with the

other financial institution regulators,

issued guidance on the proper

accounting and regulatory reporting

for certain types of deferred compensation arrangements. In order 

to address the industry’s concerns

about potential changes in the

accounting for allowances for loans

and lease losses, the FDIC joined

other financial institution regulators

in March to advise the industry on

the status of the American Institute

of Certified Public Accountants’ 

work on this important subject and

to remind institutions of the current

accounting and regulatory reporting

guidance in this area. In addition, 

in an effort to avoid adverse changes

in the accounting for loan participations, the FDIC worked extensively

with the Financial Accounting

Standards Board (FASB) to ensure

FASB fully understood the treatment

of loan participations in receiverships

for its consideration and further

deliberation on the proper accounting

for this critical lending activity.

Financial Education and

Community Development

During 2004, the Corporation 

continued to expand the scope and

impact of its efforts to increase the

availability of financial services to lowand moderate-income populations,

as well as to those outside the 

financial mainstream. 

The Corporation has worked diligently

to form partnerships with financial

institutions, bank trade associations,

non-profit organizations, community

and consumer-based groups and 

federal, state and local agencies 

to promote financial education. 

In 2004, the FDIC added over 200

partners to its Money Smart alliance,

increasing its total to over 900 

partnerships nationally. Through 

its Money Smart financial education

program, the FDIC has provided

training to an estimated 8,300 

volunteer instructors, reached 

more than 294,000 consumers, 

disseminated an additional 20,000

copies of the Money Smart curriculum, and seen the establishment 

of more than 40,000 bank accounts.

The Money Smart curriculum is 

available in five languages: English,

Spanish, Chinese, Korean, and

Vietnamese. The FDIC launched 

a new interactive computer-based

version of Money Smart in English

and Spanish in September 2004.

The target to conduct and participate

in 125 outreach and technical 

assistance activities in 2004 was

exceeded.
16

The FDIC is one of 20 agencies 

that are members of the Financial

Literacy Education Commission,

which was established by Congress

in 2003 to educate Americans 

about the importance of personal

finances. The FDIC chairs one of 

two subcommittees formed by the

Commission, a subcommittee to

develop a national toll-free hotline 

(1-888-mymoney) that consumers

can use to obtain information 

on personal finance topics. The

Commission launched the hotline 

in late 2004. 

During 2004, the FDIC also continued

to lead a Chicago-based pilot project

called the New Alliance Task Force

(NATF), which is focused on increasing

access to bank products and services

for Latino immigrants. NATF is a

broad-based coalition of 63 member

organizations, comprised of the

Mexican Consulate, banks, communitybased organizations, federal bank

regulatory agencies, government

agencies, and representatives from

the secondary market and private

mortgage insurance companies. In

2004, NATF-member banks opened

50,000 new accounts throughout the

Midwest, totaling about $100 million

in new deposits, with an average

account balance of $2,000.

Consumer Privacy and 

Identity Theft

The FDIC has taken a leading role 

in helping banks combat identity

theft. In November 2004, the FDIC

published a study entitled Stop,

Thief! Putting an End to AccountHijacking Identity Theft. The study

took an in-depth look at identity

theft, focusing on account hijacking

(the unauthorized use of deposit

accounts). The study found account

hijacking fraud could be significantly

reduced if banks upgraded the 

security measures they use to

authenticate customers who access

their accounts remotely via computers

and used specialized software to

proactively detect and defend against

account hijacking. The study also

concluded that increased consumer

education and information-sharing

could reduce identity theft. The FDIC

is currently investigating the most

appropriate ways to follow up on 

the study’s findings.

The FDIC conducted a study on 

offshore outsourcing following

Chairman Powell's March 4, 2004,

testimony before the House

Subcommittee on Oversight and

Investigations on Financial Services

and the Senate Banking Committee.

The purpose of the study was to

identify risks to consumer privacy 

and identity theft from foreign outsourcing. The study also identified

best practices that financial institutions

can use to mitigate the risk inherent

in foreign outsourcing relationships.

The study recommended that the

banking agencies expand the scope

of examination procedures to include

identification of undisclosed thirdparty contracting arrangements and

conduct an analysis of the feasibility

of using the FFIEC as a central 

location for the Bank Service

Company Act notices filed by 

financial institutions. This information

could then be used for analysis,

monitoring and tracking by the

supervisory agencies. The FDIC 

is working with the other banking

agencies to implement these 

recommendations.

The FDIC is one of several federal

agencies charged with implementing

the provisions of the Fair and Accurate

Credit Transactions Act of 2003

(FACT Act), which substantially

amended the Fair Credit Reporting

Act, particularly in the areas of 

consumer access to and quality 

of credit information, privacy, and

identity theft. The FACT Act:

● preserves uniform national 

standards for the content of 

consumer report information 

and creditor access to such 

information,

● improves consumer access 

to credit information,

Leaders gather at Commission’s first meeting (l to r):

Federal Reserve Board Chairman Alan Greenspan, 

FDIC Chairman Donald E. Powell, 

National Credit Union Administration Chairman Dennis Dollar 

and Treasury Secretary John Snow.
17 

● improves the quality of reported 

credit information,

● protects privacy,

● combats identity theft, and

● promotes financial literacy.

Consistent with the privacy 

requirements of the FACT Act, 

the FDIC worked with other federal

agencies to issue draft rules in 2004:

(1) permitting creditors to obtain, 

use and share medical information

only to the degree necessary to 

facilitate legitimate operational

needs; and (2) providing consumers

with the ability to limit the circumstances under which affiliated 

financial institutions may use certain

information in connection with 

marketing activities. These rules 

will be issued in final form once 

the agencies fully consider the 

comments received in response 

to the proposals. In the meantime,

the FDIC is training its examiners 

on the concepts underlying these

rules, and is developing examination

procedures to evaluate industry 

compliance.

Consistent with the identity theft

provision of the FACT Act, the FDIC

worked with other federal agencies

in 2004 to propose rules that would

require banks to implement a written

identity theft protection program

which includes procedures to evaluate

red flags that might indicate identity

theft. The FDIC, with the other 

agencies, also finalized rules requiring

institutions to properly dispose of

consumer information derived from

credit reports in order to prevent

identity theft and other fraud. The

rules on disposal of consumer 

information become effective on

July 1, 2005.

Curbing Unfair and 

Deceptive Practices

In March 2004, the FDIC and the

Federal Reserve Board (FRB) jointly

published guidance for state-chartered

institutions on unfair or deceptive acts

or practices prohibited by Section 5

of the Federal Trade Commission

(FTC) Act. This guidance explains

how institutions may avoid engaging

in practices that might be viewed 

as unfair or deceptive. The FDIC 

also joined with the FFIEC agencies 

to propose guidance on overdraft

protection programs in June 2004.

The proposed guidance discusses: 

● approaches to providing consumers

with protection against account 

overdrafts; 

● existing and potential concerns 

about offering and administering 

overdraft protection services; 

● key legal issues, including 

compliance with the FTC Act 

and other applicable federal and 

state laws;

● safety and soundness considerations, such as whether institutions

offering overdraft protection 

services have adopted adequate 

policies and procedures to address

the credit, operational and other 

risks associated with these 

services; and

● best practices in use or 

recommended by the industry, 

including those relating to 

marketing overdraft protection 

services and communicating 

with customers about the 

features of such programs.

The agencies received about 300

comments on the proposed guidance.

We expect the final guidance to be

issued in 2005. 

Consumer Complaints 

and Inquiries 

The FDIC investigates and responds

to complaints and inquiries from 

consumers, financial institutions and

other parties about potential violations

of consumer protection and fair 

lending laws, as well as deposit

insurance matters. The FDIC’s 

centralized Consumer Response

Center (CRC) is responsible for

investigating all types of consumer

complaints about FDIC-supervised

institutions and for answering

inquiries about consumer protection

laws and banking practices. During

2004, the FDIC received 8,804 

complaints, of which 3,791 were

against state-chartered nonmember

banks. Approximately 41 percent 

of the state nonmember bank 

consumer complaints concerned

credit card accounts, with the most

frequent complaints involving loan

denials, billing disputes and account

errors, terms and conditions, collection

practices, reporting of erroneous

information, identity theft, and 

credit card fees and service charges.

The FDIC also responded to 2,947

deposit insurance and 5,087 consumer

protection inquiries from consumers

and members of the banking 

community. The FDIC responded to

over 90 percent of written complaints

on a timely basis.
18

Deposit Insurance Education

An important part of the FDIC’s role

in insuring deposits and protecting

the rights of depositors is its responsibility to ensure that bankers and

consumers have access to accurate

information about FDIC deposit

insurance rules. To that end, the

FDIC has an expansive deposit 

insurance education program 

consisting of seminars for bankers,

electronic tools for calculating

deposit insurance coverage, and

written and electronic information

targeting both bankers and 

consumers. During 2004, the FDIC

completed a digital video for bank

employees and customers explaining

how FDIC deposit insurance works

and issued a new edition of our

Electronic Deposit Insurance

Estimator (EDIE) for Bankers. The

video, which is available on DVD 

and can also be viewed through 

the FDIC’s Web site, provides an

overview of deposit insurance 

coverage rules and requirements,

with specific emphasis on the most

common account ownership categories used by individuals and families.

The EDIE software update met a

2004 performance target to provide

improved resources to bankers on

deposit insurance rules. It allows

bankers to calculate their customers’

insurance coverage for nearly all types

of deposit accounts an individual or

business may have at an insured bank

or savings association. Consumers

can also access EDIE directly through

the FDIC’s Web site.

In 2004, the FDIC continued to expand

its educational tools for consumers

by issuing two new brochures 

for bank customers. Insuring Your

Deposits describes insurance coverage rules for deposit accounts most

commonly owned by individuals 

and families. Your Insured Deposits -

FDIC’s Guide to Deposit Insurance

Coverage, an update of the 1999

version, provides an in-depth 

explanation of the FDIC’s account

ownership categories and includes

the FDIC’s new rules for insurance

coverage of living trust accounts that

became effective on April 1, 2004. 

The FDIC also conducted 38 deposit

insurance seminars for financial 

institution employees, consumer

organizations, and bank regulatory

agencies. These seminars, which

were conducted in a variety of 

formats, including internet, phone

conference, and classroom, provided

an in-depth review of how FDIC

insurance works, including the FDIC’s

rules for coverage of different types

of deposit accounts. 

Office of the Ombudsman (OO)

Services to the Banking Industry

The OO was established by federal

statute to serve as a confidential,

neutral, and independent resource

and liaison for bankers with the 

FDIC on regulatory matters. The 

OO ensures the fair and consistent

application of FDIC rules and 

regulations, and the fair treatment 

of institutions throughout the FDIC’s

examination, assessment, application,

enforcement, rule-making and other

processes. The OO works with

financial institutions and the FDIC 

to informally resolve problems and

disputes at the earliest possible

stages. During 2004, bankers and 

members of the public contacted the

OO, voicing questions and seeking

problem or complaint resolution.

Cumulatively, these contacts provided

the FDIC with an important perspective on general and specific matters

of importance, concern, or uncertainty

to bankers.

High school senior Christopher Perry (with Chairman Don Powell, left, and Chief of Staff 

Jodey Arrington, right) said “he left with a positive outlook on the role of the FDIC and its 

duty to insure depositors’ money.” 
19 

Protecting Insured Depositors

Through Asset Marketing

The FDIC’s ability to attract healthy

FDIC-insured institutions to assume

deposits and purchase the assets of

failed banks and savings associations

ensures that depositors have prompt

access to their insured deposits,

minimizes the disruption to the 

customers and the community, and

allows a fair portion of the failed

institution’s assets to be returned to

the private sector almost immediately.

Assets remaining after the resolution

transaction are liquidated by the

FDIC in an orderly manner, and the

proceeds are used to pay creditors

and uninsured depositors (depositors

whose accounts exceed the $100,000

deposit insurance limits), and to

reimburse the insurance fund that

funded the resolution transaction. 

In 2004, the FDIC again met its goal

of marketing 85 percent of a failed

institution's marketable assets within

90 days of the institution's failure.

Receivership Management

The FDIC has the unique mission of

protecting the depositors of insured

banks and savings associations.

Since the FDIC’s inception over 

70 years ago, no depositor has 

ever experienced a loss of insured

deposits at an FDIC-insured institution

due to a failure. The FDIC protects

insured depositors by prudently 

managing the BIF and the SAIF and

using the assets of the funds to pay

insured deposits at the time of the

institution failure. Once an institution

is closed by its chartering authority –

the state for state-chartered 

institutions, the OCC for national

banks, or the Office of Thrift

Supervision (OTS) for federal savings

associations–the FDIC is responsible

for the resolution of the failed bank

or savings association. FDIC staff

gathers data about the troubled 

institution, estimates the potential

loss due to its failure, solicits and

evaluates bids from all known 

qualified and interested bidders, 

and then recommends the least

costly resolution transaction to 

the FDIC’s Board of Directors. 

Resolving Financial Institution

Failures

During 2004, the FDIC resolved three

BIF-insured institution failures and

one SAIF-insured institution failure.

The SAIF - insured institution, Dollar

Savings Bank, Newark, New Jersey,

with total assets of $15 million, was

closed on February 14, and depositors

received their insured funds by check.

Guaranty National Bank of Tallahassee,

Tallahassee, Florida, with total 

assets of $77 million, was closed on

March 12. All of Guaranty’s deposits

and a large portion of its assets 

were sold to another FDIC-insured

institution. Reliance Bank, White

Plains, New York, with total assets of

$27 million, was closed on March 19.

All of Reliance’s deposits and a large

portion of its assets were also sold

to another FDIC - insured institution.

The Bank of Ephraim, Ephraim, Utah,

with total assets of $46 million, was

closed on June 25. In all cases, the

target time frame was met for giving

depositors access to their funds.

Ephraim’s insured deposits were sold

to another FDIC-insured institution.

(See the accompanying table above

for details about liquidation activities.)

During 2004, the FDIC completed

investigations and decisions regarding

closure or pursuit of claims for all 

five receiverships that had failed

within the prior 18 months. This

exceeded the performance target 

of reaching decisions on closure 

or pursuit of professional liability

claims for 80 percent of failed 

institutions within 18 months of 

the failure date. 

2004 2003 2002

Total Resolved Banks 3 3 10

Assets of Resolved Banks $ 0.15 $ 1.10 $ 2.50

Total Resolved Savings Associations 1 0 1

Assets of Resolved Savings Associations $ 0.01 $ 0.00 $ 0.05

Net Collections from Assets in Liquidation●$ 0.38 $ 1.70 $ 1.84

Total Assets in Liquidation●$ 0.61 $ 0.81 $ 1.24

Total Dividends Paid●$ 0.38 $ 1.06 $ 2.12

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

Trust Corporation. 

Dollars in billions

Liquidation Highlights 2002-2004

●
20

Customer Service Center

In order to help consumers needing

assistance with matters arising 

from failed financial institutions, the

FDIC operates a Customer Service

Call Center with staff dedicated 

to handling records research and 

collateral releases. During 2004, 

the FDIC staff responded to 36,791

inquiries. The records research staff

reviews the historical records of

failed financial institutions in order 

to answer customer questions on

deposit accounts, loan transaction

histories, tax suits for delinquent 

real estate and other issues. 

The collateral release staff researches

and determines ownership of collateral

securing loans of failed financial 

institutions in order to provide 

a release of lien, assignment or

reconveyance to the borrower. This

staff successfully handled 13,494

collateral release inquiries in 2004. 

The Customer Service Call Center

handled 76,217 calls asking for 

information or assistance. The FDIC

Customer Service Center also 

supported the Federal Emergency

Management Agency (FEMA) in 

its effort to help the people affected

by hurricanes in Florida and other

parts of the country. More than 100

FDIC employees assisted FEMA in

fielding calls and processing FEMA

applications associated with these

emergencies. 

Receivership Terminations

The FDIC, as receiver, manages 

the receivership estate and the 

subsidiaries of failed financial 

institutions with the goal of achieving

an expeditious and orderly termination.

The oversight and prompt termination

of receiverships help to preserve

value for the uninsured depositors

and creditors by reducing overhead

and other holding costs. For that 

reason, the FDIC has established 

a target of terminating 75 percent 

of receiverships within three years 

of the failure date. This goal was

met at year-end 2004, with only 

one of four 2001 receiverships still

active. The single remaining receivership could not be terminated due to

the existence of ongoing professional

liability litigation and other impediments. These cases continue to 

be vigorously pursued through 

appropriate negotiations and litigation

proceedings. In 2004, there were 30

pre–2001 receiverships terminated;

59 remain to be terminated.

Effective Management 

of Strategic Resources

The FDIC must effectively manage

and utilize a number of critical 

strategic resources in order to

carry out its mission successfully,

particularly its human, financial, and

information technology (IT) resources.

Major accomplishments in improving

the Corporation's operational efficiency

and effectiveness are outlined below.

Although the FDIC is not subject to

the President's Management Agenda,

many of these efforts are consistent

with that agenda.

Human Capital Management

The FDIC’s employees are its most

important strategic resource. For 

that reason, it seeks to continue 

to be the employer of choice within

the financial regulatory community

and to operate a human resources

program that attracts, develops, 

evaluates, rewards and retains a high

quality, results-oriented workforce.

This was a difficult challenge over

the past 12 years because the

Corporation was in a continuous

downsizing mode as it completed

the residual workload from the 

banking and thrift crises of the late

1980s and early 1990s. FDIC staffing

declined from approximately 23,000

(including employees assigned to 

the Resolution Trust Corporation) 

in 1992 to fewer than 5,100 at 

year-end 2004.

At the President’s Quality Award Ceremony (l to r):

Deputy OMB Director Clay Johnson, FDIC CFO Steve App, 

DRR’s Sharon Allen, Kevin Sheehan, Director Mitchell Glassman, 

Dan Walker, Nancy Champagne, Richard Salmon, OPM Director 

Kay Coles James, and FDIC Deputy to the Chairman John Brennan.
21 

During 2004, the Corporation undertook a comprehensive analysis of its

future staffing needs and formulated

a human capital strategy to guide the

FDIC through the rest of this decade.

This strategy is based upon the

implementation of a new Corporate

Employee Program that will become

the foundation for the establishment

of a smaller more adaptable permanent workforce that reflects a more

collaborative and corporate approach

to meeting critical mission functions.

This workforce will be capable 

of adapting quickly to significant

unexpected events or changes in

workload priorities in the future. 

The FDIC’s future workforce will 

also require a somewhat different

mix of skill sets than are available 

in the current workforce. The

Corporation initiated steps in late

2004 to begin reshaping its workforce

to be consistent with these concepts,

including changes to current training

programs administered by its

Corporate University. The Corporation

also began the development of a

new human capital framework that,

when implemented, will provide a

methodology for future workforce

planning and succession management.

The FDIC will require more flexibility

in its management of human resources

in order to realize its vision of its

future workforce. To that end, the

Corporation worked with the Office

of Personnel Management to obtain

expanded delegations of administrative

authority. It also submitted to the

Congress in late 2004 proposed 

legislation that would provide the FDIC

with additional personnel authorities

that are tied directly to the FDIC’s

unique mission responsibilities. 

These included independent hiring

authority, greater flexibility in the use

of term appointments, the ability to

re-employ annuitants and waive dual

compensation restrictions, authority

to establish a separate appeals

process for disciplinary actions, 

and the ability to hire experts and

consultants in the same manner 

as other federal agencies.

During the past year, the Corporation

continued to emphasize the linkage

of individual pay to concrete 

accomplishment and contributions.

Approximately 400 managers and

supervisors were converted to a

new Corporate Manager Program in

April 2004. This program is similar to

the Executive Manager classification

and pay program instituted in 2002

and replaces the old program of fixed

annual pay increases with a new 

pay and bonus program in which 

pay increases and bonuses vary by 

individual and are not guaranteed.

More than 1,000 non-bargaining unit

employees were also converted 

to a new Contributions-Based

Compensation Program that provides

a wider range of possible rewards

than the Corporate Success Award

program established in 2002.

The Corporation also initiated a new

buyout and early retirement program

in late 2004. This program is targeted

to reduce identified staffing surpluses

and to support the realignment of

the current workforce, consistent with

identified future workforce needs. 

The Corporation also announced

planned reductions-in-force in 2005

and 2006, if necessary, to eliminate

employee surpluses and support

realignment of the FDIC workforce.

Reducing Costs and Improving

Financial Management

The FDIC’s operating expenses are

largely paid from the insurance funds,

and the Corporation continuously 

seeks to improve its operational

efficiency in fulfillment of its fiduciary

responsibilities to the funds. To that

end, the Corporation engages annually

in a rigorous planning and budgeting

process to ensure that budgeted

resources are properly aligned with

workload. That is particularly true with

respect to staffing, since personnel

costs constitute well over 60 percent

of the Corporation's annual administrative expenses. In late 2004, the

FDIC Board of Directors approved

management recommendations to

reduce authorized staffing by 674

positions, to 4,750, by year-end

2005.

Authorized year-end 2005 staffing 

is substantially lower than previous

authorized staffing levels for the 

resolutions and receivership business

line as well as the IT and administrative support functions. Staffing

reductions were approved for 

the Division of Resolutions and

Receiverships and the Legal Division

following a lengthy analysis of current

and projected future workload in 

the resolutions and receivership

management area and reflect the

smaller number of financial institution

failures for the past several years.

Staffing reductions in the Division of

Information Resources Management

and the Division of Administration

reflect improved business processes,

savings from contract consolidation,

and outsourcing of functions where

cost effective.
22

The FDIC adopted significant changes

in 2004 to the sourcing strategy for

obtaining contractor support for its IT

functions. These changes incorporate

the concept of partnering with the

private sector and other federal

agencies; the use of performancebased, results-driven contracts; the

consolidation of nearly 100 support

contracts into several large multi-year,

all-encompassing contracts; and the

appointment of full-time professional

oversight managers to manage 

and administer these contracts. 

The structure of the new contracts

places the emphasis on contractor

performance and links contractor

compensation to results achieved

rather than costs incurred. The 

Board of Directors approved the 

consolidation of contracts supporting

both the IT infrastructure and 

applications support.

Several years ago, the Corporation

separated its investment expenses

from its annual operating budget 

in order to ensure a more rigorous

approach to the approval and 

management of major investment

initiatives. The single most significant

current initiative is the construction

of additional FDIC office and multipurpose buildings adjacent to the

existing facilities at Virginia Square.

This project will eliminate the 

need for the Corporation to lease

commercial space in downtown

Washington, DC, and will substantially

reduce future facility costs. The 

project remains on target for occupancy in the first quarter of 2006.

Management processes have been

implemented to ensure adherence 

to the project budget and schedule.

Construction of the new building will

provide estimated cost savings of

approximately $78 million (net present

value) over 20 years, when compared

to the projected costs associated

with the current headquarters leasing

arrangements.

Improving the FDIC’s Use 

of Information Technology

The Corporation established a new

Chief Information Office (CIO) Council

in February 2004. The overall mission

of the Council is to serve as an 

executive-level advisory group to the

CIO, and to help shape Corporate IT

strategy and activities. Establishing

the CIO Council is part of a multipronged approach to re-engineering

the Corporation's IT program. The

CIO Council advises the CIO on all

aspects of adoption and use of IT 

at the FDIC. Accomplishing the

Corporation’s strategic goals and

business objectives depends on

achieving successful results from IT

initiatives. One of the first initiatives

of the Council was to conduct an

analysis of FDIC's current applications

portfolio. An estimated 30 existing

applications were retired in 2004,

with a larger number of retirements

expected to occur over the next

year.

The FDIC also greatly expanded 

its use of its e-government portal,

FDICconnect (a secure Web site 

that allows FDIC-insured institutions

to conduct business and exchange

information with the FDIC, other 

federal regulatory agencies and 

various state banking departments),

in 2004. FDICconnect will enable 

the FDIC to comply with the

Government Paperwork Elimination

Act of 1998 (GPEA) and address

Presidential guidelines that direct

government agencies to establish

electronic alternatives to current

paper processes where feasible.

Nearly 44 percent of FDIC-insured

institutions have registered to use

FDICconnect.

Members of the CIO Council (l to r):

Seated, CIO Council Chair Mike Bartell and Sandra Thompson.

Standing: (l to r): Jerry Russomano, Eric Spitler, Gail Verley, Rus Rau, 

Ann Bridges Steely and Doug Jones.

Not shown: Ron Bieker, Maureen Sweeney, Janet Roberson, and 

Gail Patelunas.
23

In 2004, the FDIC expanded the

capabilities of FDICconnect to allow

institutions to submit applications 

seeking extensions of time for 

completing a transaction or condition

related to previously approved 

applications; prior FDIC consent 

to reduce or retire capital stock 

or capital notes or debentures; and

approval to make golden parachute

payments or excess non-discriminatory severance plan payments. In

November, the FDIC Board approved

use of FDICconnect as the vehicle

for all insured financial institutions 

to receive their quarterly insurance

assessment invoices and eliminated

the requirement for institutions 

to sign and return correct certified

statements, thus eliminating burden

on the institutions.
1

II. Financial

Highlights

Deposit Insurance Fund

Performance

The FDIC administers two deposit

insurance funds – the Bank Insurance

Fund (BIF) and the Savings Association

Insurance Fund (SAIF) – and manages

the FSLIC Resolution Fund (FRF),

which fulfills the obligations of the

former Federal Savings and Loan

Insurance Corporation (FSLIC) 

and the former Resolution Trust

Corporation (RTC). The following

summarizes the condition of the

FDIC’s insurance funds. (See the

accompanying tables on FDICInsured Deposits, Insurance Fund

Reserve Ratios and Risk-Related

Premiums on the following pages.)

The BIF reported comprehensive

income (net income plus current

period unrealized gains/losses on

available-for-sale securities) of 

$1 billion for the twelve months 

ending December 31, 2004, compared

to $1.7 billion for the same period 

in the prior year. This reduction 

was primarily due to an increase 

in unrealized losses on available-forsale securities of $102 million and 

a reduction in net income of $625 

million. The decline in net income

primarily resulted from a smaller

negative adjustment of $269 million

to the provision for losses at

December 31, 2004, compared to 

a negative $931 million adjustment

for the same period last year. BIF’s

provision for losses negative adjustments were mostly attributable to

the reduction of estimated losses 

for future and actual failures. As of

December 31, 2004, the fund balance

was $34.8 billion, up from $33.8 

billion at year-end 2003. 

The SAIF reported comprehensive

income of $480 million for the twelve

months ending December 31, 2004,

compared to $493 million for the

same period in the prior year. This

reduction of $13 million was primarily

due to slightly lower earnings on

U.S.Treasury obligations whereby 

a $30 million increase in unrealized

losses was partially offset by a $23

million increase in interest revenue.

As of December 31, 2004, the fund

balance was $12.7 billion, up from

$12.2 billion at year-end 2003.

Operating Expenses

Corporate Operating Budget expenses

totaled $1.004 billion in 2004, including

$986 million in ongoing operations and

$18 million for receivership funding.

This represented approximately 

97 percent of the approved budget

on ongoing operations and 24 percent

of the approved budget for receivership funding. Receivership funding

expenses were down significantly

from 2003 because the four financial

institution failures in 2004 were 

relatively small banks.

In December 2004, the Board of

Directors approved a 2005 Corporate

Operating Budget of approximately

$1.1 billion, including just over 

$1.0 billion for ongoing operations.

The level of approved spending in

the 2005 budget remains virtually

the same as that in 2004 due to 

continuing efforts to identify operational efficiencies and control costs.

The Corporate Operating Budget

includes funding for a number 

of major new initiatives, including 

funding for a Hispanic financial 

literacy program, and hiring additional

financial analysts and risk modeling

specialists to prepare for implementation of the Basel Capital Accord. 
25

The 2005 budget includes estimated

funding requirements ($35 million)

for litigation expenses projected to

be incurred on behalf of the FDIC

by the U.S. Department of Justice. 

Investment Spending

The FDIC has a disciplined process

for reviewing proposed new capital

investment projects and managing

the implementation of approved 

projects. Most of the projects in 

the current investment portfolio 

are major IT system initiatives.

Proposed projects are carefully

reviewed to ensure that they are

consistent with the Corporation’s

enterprise architecture and include

an appropriate return on investment

for the insurance funds. The process

also enables the FDIC to be aware of

risks to the major capital investment

projects and facilitates appropriate,

timely intervention to address these

risks throughout the development

process. An investment portfolio 

performance review of the major

capital investments is provided to the

FDIC’s Board of Directors quarterly.

During 2004, the Board of Directors

approved only one new investment

project, a new Web-based time 

and attendance reporting system.

Additional spending was also approved

for three existing investment projects:

(1) Legal Integrated Management

System increased by $1.4 million 

to $5.06 million, (2) New Financial

Environment increased $17 million 

to $51.8 million, and (3) ViSION

increased $6.2 million to $12.7 million.

Funding for FDIC staff assigned to

investment projects was transferred

to the Corporate Operating Budget,

at year-end 2004, in order to more

accurately account for and provide

year-to-year comparisons of salary

and compensation expenses included

in those operating budgets. However,

all other project spending continues

to be provided through separate

investment budget authorizations.

SAIF-Insured

BIF-Insured

3,500

3,000

2,500

2,000

1,500

1,000

500

0

Source: Commercial Bank Call Reports and Thrift Financial Reports

1960 70 80 90 2000

FDIC-Insured Deposits (estimated 1960-2004)

Dollars in billions

04
26

1.45

1.40

1.35

1.30

1.25 (target ratio)

0

6/02 9/02 12/02 3/03 6/03 9/03 12/03 3/04 6/04 9/04 

Insurance Fund Reserve Ratios Percent of Insured Deposits

BIF

SAIF
27

Risk-Related Premiums

The following tables show the number and percentage of institutions insured by the Bank Insurance 

Fund (BIF) and the Savings Association Insurance Fund (SAIF), according to risk classifications effective

for the first semiannual assessment period of 2004. Each institution is categorized based on its 

capital group (1, 2, or 3) and supervisory subgroup (A, B, or C), which is generally determined by on-site 

examinations. Assessment rates are basis points, cents per $100 of assessable deposits, per year.

BIF Supervisory Subgroups●

Capital Group A B C

1. Well Capitalized:

Assessment Rate 0 3 17

Number of Institutions 7,314 (92.7%) 421 (5.3%) 79 (1.0%)

2. Adequately Capitalized:

Assessment Rate 3 10 24

Number of Institutions 58 (0.7%) 4 (0.1%) 8 (0.1%)

3. Undercapitalized:

Assessment Rate 10 24 27

Number of Institutions 2 (0.0%) 0 (0.0%) 2 (0.0%)

SAIF Supervisory Subgroups■

1. Well Capitalized:

Assessment Rate 0 3 17

Number of Institutions 1,073 (93.3%) 62 (5.4%) 9 (0.8%)

2. Adequately Capitalized:

Assessment Rate 3 10 24

Number of Institutions 4 (0.3%) 2 (0.2%) 0 (0.0%)

3. Undercapitalized:

Assessment Rate 10 24 27

Number of Institutions 0 (0.0%) 0 (0.0%) 0 (0.0%)

BIF data exclude SAIF-member “Oakar” institutions that hold BIF-insured deposits. The assessment rate reflects the rate 

for BIF-assessable deposits, which remained the same throughout 2004.

SAIF data exclude BIF-member “Oakar” institutions that hold SAIF-insured deposits. The assessment rate reflects the rate

for SAIF-assessable deposits, which remained the same throughout 2004.

●

■
1

Summary of 2004 Performance Results by Program

The FDIC successfully achieved 26 of the 31 annual performance targets 

established in its 2004 Annual Performance Plan. Three performance targets were

not applicable and two were not met. The FDIC did not hold a Future of Banking

Conference in 2004, as originally planned. Instead, it elected to disseminate the

results of the study and solicit feedback from interested parties by publishing

papers from the study on the FDIC Web site and discussion of the study results

in FDIC publications and speeches by senior FDIC officials. Originally scheduled

for implementation in October 2004, rollout of the Call Data Repository was

postponed to address industry feedback and allow more time for system testing

and enrollment of financial institutions.

Key accomplishments by program are highlighted below. There were no

instances in which 2004 performance had a material adverse effect on 

successful achievement of the FDIC’s mission or its strategic goals and objectives

with respect to its major program responsibilities. In addition, consideration 

of 2004 performance results was an integral part of the development of the

FDIC’s 2005 Annual Performance Goals. 

The Office of Inspector General (OIG) has shared its view of the most significant

challenges the Corporation is confronting and has acknowledged actions 

underway to address these issues. (See Appendix C for a list of these challenges.)

Management is committed to addressing each of the issues identified by the

OIG.

III. Performance

Results

Summary
29

Program Area Performance Results

Insurance ● Resolved four failed insured institutions, providing depositors with access to insured deposits 

in each case. For three of the four failures, depositors had uninterrupted and continuous access 

to insured deposits as the deposits were assumed by an acquiring entity. One of the four failures 

was a payout.

● Completed implementation of enhancements to the reserving process and methodology in 

accordance with recommendations from a comprehensive study. 

● Congress did not enact deposit insurance reform legislation. The FDIC will continue to press 

for reform. 

● Completed risk assessments for all large insured depository institutions and followed up on all 

identified concerns referred for examination or other supervisory action.

● Improved the accuracy and efficiency of off-site risk identification models.

● Completed the development of a CD-ROM and Internet-based resource for bankers on the 

deposit insurance rules.

● Published economic and banking information and analysis:

● Four FDIC Outlook publications.

● Ten FYI electronic bulletins.

● Four editions of the FDIC Quarterly Banking Profile (QBP).

● Four editions of the FDIC State Profiles.

● Five articles authored or co-authored by FDIC staff accepted for publication 

in professional journals. 

Supervision and ● Conducted 2,515 safety and soundness examinations. This included all statutorily required safety 

Consumer Protection and soundness examinations, except for a small number deferred due to pending mergers.

● Conducted 2,136 compliance and Community Reinvestment Act examinations in accordance 

with FDIC policy.

● Participated in 125 Money Smart events and technical assistance activities related to the 

Community Reinvestment Act, fair lending and community development, and added 200 

Money Smart Alliance members and distributed 20,000 copies of the Money Smart curriculum.

Receivership ● Contacted all qualified potential bidders in three of the four institution failures in 2004. One failed

Management institution was not offered for sale as a result of fraud allegations and little advance notice of 

the closing.

l ● Marketed 100 percent of marketable assets of five failed financial institutions within 90 days 

of failure (one of the institutions failed in late 2003).

● Terminated three receiverships, meeting the target to terminate 75 percent within three years 

of failure date.
2004 Budget and Expenditures by Program

The FDIC budget for 2004 totaled $1.210 billion. Excluding $147 million for

Corporate General and Administrative expenditures, budget amounts were 

allocated to corporate programs and related goals as follows: $221 million, 

or 18 percent, to the Insurance program; $567 million, or 47 percent, to the

Supervision and Consumer Protection program; and $275 million, or 23 percent,

to the Receivership Management program. 

Actual expenditures for the year totaled $1.112 billion. Excluding $131 million 

for Corporate General and Administrative expenditures, actual expenditures

were allocated to programs as follows: $143 million, or 13 percent, to the

Insurance program; $631 million, or 57 percent, to the Supervision and Consumer

Protection program; and $207 million, or 19 percent, to the Receivership

Management program. 

30

Expenditures

Budget

$ 700

$ 600

500

400

300

200

100

0

Insurance Supervision and Receivership General 

Program Consumer Protection Management and

Program Program Administrative 

2004 Expenditures and Budget (Support Allocated) 

Dollars in Millions
31

Performance Results by Program and Strategic Goal

Insurance Program Results

Strategic Goal: Insured depositors are protected from loss without recourse to taxpayer funding.

Annual Performance Goal Indicator Target Results

1. Respond promptly to all financial Number of business days after If the failure occurs on Achieved.

institution closings and emerging institution failure by which a Friday the target is one See pg. 19.

issues. depositors will have access business day.

to insured funds either through 

transfer of deposits to successor If the failure occurs on any Not 

insured depository institution other day of the week, the Applicable.

or depositor payout. target is two business days. All failures

occurred on

a Friday.

2. Identify and address risks to the Assess risks posed by large Assess risks in 100 percent Achieved.

insurance funds. insured depository institutions. of large insured depository See pg. 11.

institutions and adopt 

appropriate strategies.

Identify and follow up on concerns Identify and follow up on Achieved.

referred for examination or other 100 percent of referrals. See pg. 12.

action (i.e., contact the insured 

institution or primary supervisor).

Disseminate data and analyses Analyses are included in Achieved.

on current issues and risks regular publications or as See pg. 11.

affecting the banking industry ad hoc reports on a timely 

to bankers, supervisors, basis.

stakeholders, and the public.

Conduct industry outreach Achieved.

activities aimed at the banking See pg. 11.

community and industry trade

groups to discuss current 

trends and concerns and 

to inform bankers about 

available FDIC resources.

3. Maintain sufficient and reliable Maintain quality and timeliness Implement a modernized Not

information on insured depository of bank data. Call Reporting process by Achieved.

institutions. December 31, 2004. See pg. 11. 
Insurance Program Results (continued)

Strategic Goal: Insured depositors are protected from loss without recourse to taxpayer funding.

Annual Performance Goal Indicator Target Results

4. Maintain and improve the deposit Pursuit of changes to the Provide information and Achieved.

insurance system. deposit insurance system is analysis to Congressional See pgs.

in accordance with proposals committees in support of 8-9.

submitted to the Congress. deposit insurance reform

legislation.

Develop and obtain the Achieved.

necessary support for a See pgs.

proposed assessment credit 8-9.

and rebate system and a

new deposit insurance 

pricing system.

When deposit insurance Not 

reform is enacted, implement Applicable.

legislation in accordance Legislation

with statutorily prescribed not enacted

time frames. in 2004.

Make appropriate changes to Review discrepancies Achieved.

the current methodology for between projected failed See pgs.

projecting losses in failing assets and actual failed assets 8-9.

financial institutions and by applying sophisticated

establishing related loss analytical techniques to

reserves for the deposit examine the effectiveness

insurance funds. of the loss projection model

and adjust the methodology

for projecting losses

accordingly.

Implement enhancements Achieved.

to the reserving process and See pgs.

methodology in accordance 8-9.

with recommendations from 

a comprehensive 2003 review.

Maintain fund adequacy. Set assessment rates to Achieved.

maintain the insurance funds See pgs.

at the designated reserve 8-9.

ratio, or return them to the 

designated reserve ratio if 

they fall below it, as required 

by statute. 

32
33

Insurance Program Results (continued)

Strategic Goal: Insured depositors are protected from loss without recourse to taxpayer funding.

Annual Performance Goal Indicator Target Results

If deposit insurance reform Not

legislation becomes law in Applicable.

2004, promulgate rules and Legislation

regulations establishing criteria not enacted

for replenishing the deposit in 2004.

insurance fund when it falls

below the low end of the range.

Develop a working prototype Achieved.

of a new, integrated fund See pgs.

model for financial risk 8-9.

management.

Conduct a conference on the Host conference, present Not

“Future of Banking.” findings from the study and Achieved.

obtain feedback from scholars See pg.28.

and industry representatives 

and other interested parties. 

Maintain quality and visibility Implement an FDIC Center Achieved.

of the Corporation’s banking for Financial Research with See pg.10.

research activities. enhanced ties to the academic

community.

5. Provide educational information Utility of educational tools Develop a CD-ROM and Achieved.

to insured depository institutions developed for bankers and Internet-based resource for See pg.18.

and their customers to help them consumers. bankers on the deposit

understand the rules for determining insurance rules. 

the amount of insurance coverage 

on deposit accounts.
34

Supervision and Consumer Protection Program Results 

Strategic Goal: FDIC-supervised institutions are safe and sound.

Annual Performance Goal Indicator Target Results

1. Conduct on-site risk management Percentage of required One hundred percent of Achieved.

examinations to assess an FDIC- examinations in accordance required examinations are See pg.12.

supervised insured depository with statutory requirements conducted on time.

institution’s overall financial condition, and FDIC policy.

management practices and polices, 

and compliance with applicable laws

and regulations.

2. Take prompt supervisory actions to Follow-up examination of Follow-up examination is Achieved.

address problems found during the problem banks. conducted within 12 months See pg.12.

FDIC examination of FDIC-supervised of completion of the prior

institutions identified as problem examination.

insured depository institutions. 

Monitor FDIC-supervised insured 

depository institutions’ compliance 

with formal and informal enforcement 

actions.

Strategic Goal: Consumers’ rights are protected and FDIC-supervised institutions invest in their communities.

1. Provide effective outreach and Additions to the Money Smart Add an additional 200 Money Achieved.

technical assistance on topics related Alliance and the number of Smart Alliance Members. See pg.15.

to CRA, fair lending, and community Money Smart curriculum

development. provided.

Provide an additional 20,000 Achieved.

copies of Money Smart See pg.15.

curriculum.

Reach an additional 200,000 Achieved.

individuals. See pg.15.

Outreach activities and Conduct or participate in125 Achieved.

technical assistance. technical assistance efforts See pg.15.

(examination support) or 

banker/community outreach 

activities related to CRA, 

fair lending, or community 

development.

2. Effectively meet the statutory mandate Timely responses to written Ninety percent of written Achieved.

to investigate and respond to complaints. complaints are responded See pg.17.

consumer complaints about FDIC- to within time frames

supervised financial institutions. established by policy.
35

Supervision and Consumer Protection Program Results (continued)

Strategic Goal: Consumers’ rights are protected and FDIC-supervised institutions invest in their communities.

Annual Performance Goal Indicator Target Results

3. Conduct comprehensive and Conduct required examinations One hundred percent of Achieved.

compliance-only examinations in accordance with FDIC policy. required examinations are See pg.12.

in accordance with FDIC conducted within time frames 

examination frequency policy. established by FDIC policy.

4. Take prompt supervisory actions and Timely follow-up examinations Follow-up examination or Achieved.

monitor institutions rated “4” or “5” and related activity. related activity is conducted See pg.12.

for compliance to address problems within 12 months from the

identified during compliance date of a formal enforcement

examinations. action to confirm that the 

institution is in compliance

with the enforcement action.

Receivership Management Program Results 

Strategic Goal: Recovery to creditors of receivership is achieved.

1. Market failing institutions to all known List of qualified and interested Contact all known qualified Achieved.

qualified and interested potential bidders. and interested bidders. See pg.19.

bidders.

2. Value, manage, and market assets of Percentage of failed institution’s Eighty-five percent of book Achieved.

failed institutions and their subsidiaries assets marketed. value of a failed institution’s See pg.19.

in a timely manner to maximize net marketable assets are

return. marketed within 90 days 

of failure.

3. Manage the receivership estate and Timely termination of new Terminate 75 percent of Achieved. 

its subsidiaries toward an orderly receiverships. receiverships managed through See pg.20.

termination. the Receivership Oversight 

Program within three years 

of the failure date.

4. Conduct investigations into all Percentage of investigated claim For 80 percent of all claim Achieved.

potential professional liability claim areas for which a decision has areas, a decision is made See pg.19.

areas in all failed insured depository been made to close or pursue to close or pursue the claim

institutions and decide as promptly the claim. within 18 months after the

as possible to close or pursue each failure date.

claim, considering the size and 

complexity of the institution.
Depositor Payouts in Instance of Failure

Annual Goal 2001 Results 2002 Results 2003 Results 2004 Results

The FDIC responds promptly Timely payments made Timely payments made Timely payments made Timely payments made

to financial institution closings to all depositors of the to all depositors of the to all depositors of the to all depositors of the

and emerging issues. four insured depository 11 insured depository three insured depository four insured depository

institutions that failed institutions that failed institutions that failed institutions that failed

in 2001. in 2002. in 2003. in 2004.

Legislation on deposit Legislation on deposit

insurance reform was insurance reform was

introduced in the House passed in the House 

and the Senate. and was pending in the 

Senate when Congress

recessed for the year. 

Risk Classifications

Maintain and improve the Bank Insurance Fund (BIF) BIF and SAIF reserve BIF and SAIF reserve The FDIC completed

deposit insurance system. and Savings Association ratios maintained at ratios maintained at implementation of

Insurance Fund (SAIF) or above the statutory or above the statutory enhancements to the

reserve ratios maintained. ratio of 1.25 percent. ratio of 1.25 percent. reserving process and

FDIC published its final Chairman testified before Chairman testified before methodology in

recommendations for the Senate Committee the Senate Committee March 2004. During 

deposit insurance reform. in support of deposit in support of deposit 2004, assessment rates

insurance reform. insurance reform. were maintained at or

above the designated

reserve ratio as 

required by statute.

Identify and address risks Developed several Significant progress Significant progress was Significant progress was

to the insurance funds. approaches to credit risk made in improving the made in improving the made in improving the

that will be incorporated accuracy and efficiency accuracy and efficiency accuracy and efficiency

into Virtual Supervisory of off-site risk of off-site risk of off-site risk 

Information On the Net identification models. identification models. identification models.

(ViSION) system. Risk Risk assessments of Risk assessments of Risk assessments of 

assessments of all large all large insured all large insured all large insured

insured depository depository institutions depository institutions depository institutions

institutions (LIDIs) (LIDIs) were completed (LIDIs) were completed (LIDIs) were completed

were completed in compliance with in compliance with in compliance with 

in compliance with program requirements. program requirements. program requirements. 

program requirements.

Maintain sufficient and Annual goal was not Annual goal was not Annual goal was not The Central Data

reliable information on established in 2001. established in 2002. established in 2003. Repository (CDR) system

insured depository is being developed. 

institutions. Phase I of the CDR is 

expected to be delivered 

by the end of 2005.

36

Multi-Year Performance Trend
37

Risk Classifications (continued)

Annual Goal 2001 Results 2002 Results 2003 Results 2004 Results

Provide educational information Annual goal was not Annual goal was not Annual goal was not Utility for educational

to insured depository institutions established in 2001. established in 2002. established in 2003. tools was developed for

and their customers to help bankers and consumers.

them understand the rules for 

determining the amount of 

insurance coverage on deposit 

accounts. 

Risk Management, Safety and Soundness

Conduct on-site risk Conducted 2,575 or Conducted 2,534 or Conducted 2,421 Conducted 2,515

management examinations 97 percent of required 98 percent of required required safety and required safety and

to assess an FDIC-supervised safety and soundness safety and soundness soundness examinations soundness examinations

insured depository institution’s examinations. examinations. in accordance with FDIC in accordance with FDIC 

overall financial condition, policy. policy.

management practices and

policies, and compliance with

applicable regulations.

Safety and Soundness Enforcements Actions

Take prompt and effective Sixty-seven institutions Eighty-four institutions Seventy-three institutions Forty-four institutions

supervisory actions to address designated as problem designated as problem designated as problem designated as problem

problems identified during the (composite “4” or “5” (composite “4” or “5” (composite “4” or “5” (composite “4” or “5”

FDIC examinations of FDIC- rated). Fifty-six were rated). Forty-eight were rated). Fifty-eight with rated). Fifty-seven with

supervised institutions removed from problem removed from problem total assets of $6.98 total assets of $6.3

identified as problem insured status and 76 added. status and 63 added. billion were removed billion were removed

depository institutions. Monitor from problem status from problem status

FDIC-supervised insured Evaluations changed and 47 with total assets and 28 with total assets

depository institutions’ to monitor migration of $4.99 billion were of $4.8 billion were

compliance with formal of troubled banks. added. Additionally, the added. Additionally, the

and informal enforcement FDIC issued the following FDIC issued the following

actions. formal and informal formal and informal

enforcement actions: enforcement actions:

40 Cease and Desist 38 Cease and Desist

Orders and 157 Orders and 145

Memoranda of Memoranda of

Understanding. Understanding.
38

Compliance Examinations

Annual Goal 2001 Results 2002 Results 2003 Results 2004 Results

Conduct comprehensive Conducted 2,179 Conducted 1,840 Conducted 1,919 Conducted 2,136

compliance-only and CRA comprehensive comprehensive comprehensive comprehensive

examinations in accordance compliance-only and compliance-only and compliance-only and compliance-only and

with FDIC examination CRA examinations in CRA examinations in CRA examinations in CRA examinations in

frequency policy. accordance with FDIC accordance with FDIC accordance with FDIC accordance with FDIC

policy. There were no policy. There were no policy. There were no policy. There were no

delinquencies in 2001. delinquencies in 2002. delinquencies in 2003. delinquencies in 2004.

CRA Outreach

Provide effective outreach and Conducted 25 Money Money Smart The FDIC supplied Targets for the following 

technical assistance on topics Smart workshops with classes attended more than 111,000 were met: added 200 

related to CRA, fair lending, over 600 participants. by approximately copies of Money Smart new Money Smart

and community development. 2,800 participants. curriculum to Alliance members;

organizations. FDIC distributed 20,000 copies

sponsored 65 public of Money Smart

outreach initiatives, curriculum; additional

111 community 294,000 members

development activities, reached; and conducted

and 67 technical 125 outreach and

assistance activities. technical assistance

activities.

Compliance Enforcement Actions

Prompt and effective Six of seven institutions Eight of nine institutions The only “4” rated Of the five institutions

supervisory actions are had either been entered into a institution entered into rated “4” as of 

taken and monitored on all examined in the Memorandum of a Memorandum of December 31, 2004, 

institutions rated “4” or “5” preceding 12 months Understanding (MOU) Understanding (MOU) two entered into 

for compliance. or were still within the with the FDIC and the with the FDIC. Memorandums of

12 month time frame ninth was in the process Understanding with 

between examinations. of reviewing the the FDIC; and two are

One institution was recommended MOU subject to outstanding

pending resolution for at year-end. Cease and Desist Orders;

safety and soundness A Cease and Desist

reasons, and the Order for the fifth

compliance examination institution is expected 

was deferred pending to be issued during the 

resolution. first quarter of 2005.
39

Consumer Complaints and Inquiries

Annual Goal 2001 Results 2002 Results 2003 Results 2004 Results

Effectively respond to written FDIC sent 612 survey Annual goal revised Annual goal revised Annual goal revised

complaints and inquiries related cards to consumers and (see below). (see below). (see below).

to deposit insurance and bankers who contacted

consumer protection laws. the Washington Office

concerning inquiries and

complaints. Eighty-four 

(14 percent) of the cards

were returned to the

FDIC. Sixty-two percent 

of the responses rated 

the FDIC as “excellent” 

in timeliness of response.

Effectively meet the statutory The 2001 annual FDIC received 8,368 FDIC received 8,010 FDIC received 8,742

mandate to investigate performance goal was consumer complaints consumer complaints consumer complaints,

and respond to consumer not compatible to the and closed 95 percent and closed 99 percent closing 95 percent of 

complaints about FDIC- current annual goal. of them. Of the of them. Of the them. Of the closed 

supervised financial institutions. complaints closed, complaints closed, complaints, 95 percent

(Revised–2002) 94 percent were closed 94 percent were closed were closed within

within policy time frames. within policy time frames. policy time frames.

Asset Management

Value, manage and market For three institutions that For all 11 institutions that For all three institutions Five financial institutions

assets of the failed institutions failed, the FDIC marketed failed, at least 87 percent that failed, at least 98 reached their 90-day

and their subsidiaries in a timely 100 percent of the of all marketable assets percent of all marketable threshold during 2004.

manner to maximize net return. marketable assets. The were marketed within assets were marketed One hundred percent 

remaining institution the 90-day time frame, within the 90-day time of all marketable assets

was placed into thus exceeding the frame, thus exceeding were marketed within

conservatorship. Loan target of 85 percent. the target of 85 percent. the 90-day time frame.

pools, servicing operations

and residuals that totaled

in excess of the 80 percent

target were marketed

within the 90-day time 

frame.

Least- Cost Resolution

Market to all known qualified There were four failures There were 11 failures There were three failures There were four failures

and interested potential in 2001. One hundred in 2002. One hundred in 2003. One hundred in 2004. One hundred

assuming institutions. percent of the qualified percent of the qualified percent of the qualified percent of the qualified

potential bidders were potential bidders were bidders were contacted. bidders were contacted

contacted. contacted. for the sale of three

failed institutions. One

failed institution was

not offered for sale.
40

Least-Cost Resolution (continued)

Annual Goal 2001 Results 2002 Results 2003 Results 2004 Results

Conduct investigations of all Five of nine institutions Two of six institutions Four of ten institutions All five institutions that

potential professional liability that reached the 18-month that reached the 18-month that reached the 18-month reached the 18-month

claim areas in all failed insured milestone had 100 percent milestone during 2002 milestone during 2003 milestone during 2004

depository institutions. Decide of professional liability had 100 percent of had 100 percent of had 100 percent of

to close or pursue each investigations completed. professional liability professional liability professional liability

claim as promptly as possible, investigations completed. investigations completed. investigations 

considering the size and The other four institutions The other six institutions completed, meeting 

complexity of the institution. had at least 80 percent had at least 80 percent the goal of 80 percent. 

of professional liability of professional liability

investigations completed, investigations completed,

meeting the goal of meeting the goal of

80 percent. 80 percent.

Manage the receivership Fifty-two out of the 76 For the eight failures For the seven failures For the four failures

estate and its subsidiaries targeted receiverships from 1999 that matured that occurred during that occurred during

toward an orderly termination. were terminated in 2001. in 2002, the FDIC 2000 that matured in 2001 that matured in

(Revised–2001) In mid-2001, the target terminated six 2003, the FDIC 2004, the FDIC

of 76 terminations was receiverships, meeting terminated four terminated three

revised to 36. The pace the target to terminate receiverships, below receiverships, meeting

of termination was 75 percent within three the target to terminate the target to terminate

slowed by impediments years of failure. 75 percent within three 75 percent within three

that represented material years of failure. years of failure date.

financial or legal risks

to the FDIC.
41

★

★

★

★

Program Evaluation

During 2004, the FDIC completed evaluations of programs designed to achieve the strategic 

objectives set forth in the Receivership Management area of the FDIC’s 2004 – 2009 Strategic 

Plan. The following section highlights the issues evaluated and summarizes the results of this 

evaluation.

Strategic The FDIC resolves failed insured depository institutions in the least-costly manner.

Objective

Issues evaluated What is the process for marketing failing institutions?

How is a listing of qualified and interested potential bidders generated?

Findings During 2004, four financial institutions failed. Three of the four were marketed using a Web -

based automated notification system. The fourth was not marketed due to the unique situation 

involving allegations of fraud and little advance notice of the closing. The FDIC maintains 

a database of qualified and interested potential bidders consisting of financial institutions. 

In composing the potential bidders list, the FDIC takes into account the failed institution’s 

geographic location, competitive environment, minority-owned status, financial condition, asset 

size, capital level and regulatory ratings. By using a Web-based system, the FDIC can market 

to a potential bidder both the failed institution and its assets more effectively and efficiently.

Strategic Receiverships are managed to maximize net return toward an orderly and timely 

Objective termination. 

Issues evaluated How are net returns maximized?

What constitutes orderly and timely termination?

Findings For 2004, the FDIC’s goal was to market 85 percent of book value of a failed institution’s 

marketable assets within 90 days of failure. Five financial institutions reached their 90-day 

threshold during this time. In each instance, 100 percent of the marketable assets were marketed

within 90 days. Returning failed bank assets to the private sector quickly allows the FDIC to 

maximize net recoveries and minimize any disruption to the local community. The oversight and 

prompt termination of the receivership preserves value for the uninsured depositors and other 

receivership claimants by reducing overhead and other holding costs. The FDIC uses a number 

of information technology applications, including Internet auctions, to facilitate the management 

and marketing of assets.

Strategic Potential recoveries, including claims against professionals, are investigated and 

Objective are pursued and resolved in a fair and cost-effective manner. 

Issues evaluated How are potential recoveries identified and investigated?

Findings The FDIC follows extensive guidelines on how to conduct an investigation of a failed institution

to identify potential claims and recovery sources. Every aspect of the process is extensively 

documented and reviewed, from pre-closing steps, to previewing potential claims and discovering

and preserving sources of recovery for these claims, through tracking costs and recoveries. 

In addition, the FDIC keeps careful track of investigations at a high level through the Management

Control Plan, which serves to maintain a record of each investigation and keep risks in check. 

Such risks principally arise from the failure to maintain accurate reports and records necessary 

to substantiate claims.

★
1

IV. Financial

Statements

and Notes

Bank Insurance 

Fund

December 31, 2004

and 2003
43

BIF

Bank Insurance Fund

Federal Deposit Insurance Corporation

Bank Insurance Fund Balance Sheet at December 31 

Dollars in Thousands 

2004 2003

Assets

Cash and cash equivalents $ 1,822,005 $ 2,544,281

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

Held-to-maturity securities 22,637,330 16,293,073

Available-for-sale securities 9,470,605 14,209,773

Interest receivable on investments and other assets, net 601,498 550,999

Receivables from bank resolutions, net (Note 4) 375,303 511,089

Property and equipment, net (Note 5) 357,106 287,380

Total Assets $ 35,263,847 $ 34,396,595

Liabilities 

Accounts payable and other liabilities $ 268,680 $ 231,441

Contingent liabilities for: (Note 6)

Anticipated failure of insured institutions 8,261 178,266

Litigation losses and other 200,301 204,693

Total Liabilities 477,242 614,400

Commitments and off-balance-sheet exposure (Note 11)

Fund Balance

Accumulated net income 34,096,676 32,979,898

Unrealized gain on available-for-sale securities, net (Note 3) 689,929 802,297

Total Fund Balance 34,786,605 33,782,195

Total Liabilities and Fund Balance $ 35,263,847 $ 34,396,595

The accompanying notes are an integral part of these financial statements.
44

Federal Deposit Insurance Corporation

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

Dollars in Thousands 

2004 2003

Revenue

Interest on U.S. Treasury obligations $ 1,552,576 $ 1,530,014

Assessments (Note 7) 95,268 80,159

Other revenue 27,553 15,831

Total Revenue 1,675,397 1,626,004

Expenses and Losses

Operating expenses (Note 8) 822,381 805,496

Provision for insurance losses (Note 9) (269,368) (931,164)

Insurance and other expenses 5,606 9,945

Total Expenses and Losses 558,619 (115,723)

Net Income 1,116,778 1,741,727

Unrealized loss on available-for-sale securities, net (112,368) (9,872)

Comprehensive Income 1,004,410 1,731,855

Fund Balance - Beginning 33,782,195 32,050,340

Fund Balance - Ending $ 34,786,605 $ 33,782,195

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

BIF

45

Federal Deposit Insurance Corporation

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

Dollars in Thousands 

2004 2003

Operating Activities

Net Income: $ 1,116,778 $ 1,741,727

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

Amortization of U.S.Treasury obligations 737,439 455,628

Treasury inflation-indexed securities (TIIS) inflation adjustment (181,650) (115,150)

Depreciation on property and equipment 54,424 54,947

Provision for losses (269,368) (931,164)

Terminations/adjustments of work-in-process accounts 817 92

Change in Operating Assets and Liabilities:

(Increase) in interest receivable and other assets (36,433) (69,826)

Decrease in receivables from bank resolutions 218,693 102,663

Increase in accounts payable and other liabilities 15,819 85,577

(Decrease) in contingent liabilities for litigation losses and other (1,047) (25,367)

Net Cash Provided by Operating Activities 1,655,472 1,299,127

Investing Activities

Provided by:

Maturity of U.S. Treasury obligations, held-to-maturity 3,365,000 3,890,000

Maturity of U.S. Treasury obligations, available-for-sale 5,810,000 1,690,000

Used by:

Purchase of property and equipment (104,502) (41,804)

Purchase of U.S. Treasury obligations, held-to-maturity (10,026,597) (3,659,868)

Purchase of U.S. Treasury obligations, available-for-sale (1,421,649) (5,240,070)

Net Cash Used by Investing Activities (2,377,748) (3,361,742)

Net Decrease in Cash and Cash Equivalents (722,276) (2,062,615)

Cash and Cash Equivalents - Beginning 2,544,281 4,606,896

Cash and Cash Equivalents - Ending $ 1,822,005 $ 2,544,281 

The accompanying notes are an integral part of these financial statements.
11. Legislation and Operations of the Bank 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,

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 funds. The FDIC is the administrator 

of the Bank Insurance Fund (BIF), the Savings Association Insurance Fund

(SAIF), and the FSLIC Resolution Fund (FRF), which are maintained separately to

carry out their respective mandates. The BIF and the SAIF are insurance funds

responsible for protecting insured bank and thrift depositors from loss due 

to institution failures. These insurance funds must be maintained at not less

than 1.25 percent of estimated insured deposits or a higher percentage as 

circumstances warrant. The FRF is a resolution fund responsible for the sale 

of remaining assets and satisfaction of liabilities associated with the former

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

Trust Corporation. 

An active institution’s insurance fund membership and primary federal 

supervisor are generally determined by the institution’s charter type. Deposits 

of BIF-member institutions are generally insured by the BIF; BIF members are 

predominantly commercial and savings banks supervised by the FDIC, the Office

of the Comptroller of the Currency, or the Federal Reserve Board. Deposits of

SAIF-member institutions are generally insured by the SAIF; SAIF members are

predominantly thrifts supervised by the Office of Thrift Supervision. 

In addition to traditional banks and thrifts, several other categories of institutions

exist. A member of one insurance fund may, with the approval of its primary 

federal supervisor, merge, consolidate with, or acquire the deposit liabilities of

an institution that is a member of the other insurance fund without changing

insurance fund status for the acquired deposits. These institutions with deposits

insured by both insurance funds are referred to as Oakar financial institutions. 

In addition, SAIF-member thrifts can convert to a bank charter and retain their SAIF

membership. These institutions are referred to as Sasser financial institutions.

Likewise, BIF-member banks can convert to a thrift charter and retain their BIF

membership. 

Operations of the BIF

The primary purpose of the BIF is to: 1) insure the deposits and protect the

depositors of BIF-insured institutions and 2) resolve BIF-insured failed institutions

upon appointment of FDIC as receiver in a manner that will result in the least

possible cost to the BIF. In addition, the FDIC, acting on behalf of the BIF, 

examines state-chartered banks that are not members of the Federal Reserve

System. 

Bank Insurance 

Fund

Notes to the 

Financial 

Statements 

December 31, 2004

and 2003
Bank Insurance Fund

47

The BIF is primarily funded from: 1) interest earned on investments in U.S. Treasury

obligations and 2) deposit insurance assessments. Additional funding sources

are U.S. Treasury and Federal Financing Bank (FFB) borrowings, if necessary.

The FDIC has borrowing authority from the U.S. Treasury up to $30 billion for

insurance purposes on behalf of the BIF and the SAIF. 

A statutory formula, known as the Maximum Obligation Limitation (MOL), 

limits the amount of obligations the BIF can incur to the sum of its cash, 

90% of the fair market value of other assets, and the amount authorized 

to be borrowed from the U.S. Treasury. The MOL for the BIF was $57.0 billion 

as of December 31, 2004 and 2003.

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 BIF

assets and liabilities to ensure that receivership proceeds are distributed in

accordance with applicable laws and regulations. Accordingly, 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.

Recent Legislative Initiatives

In April 2001, FDIC issued recommendations for deposit insurance reform. The

FDIC recommendations included merging BIF and SAIF and improving FDIC’s

ability to manage the merged fund by permitting the FDIC Board of Directors 

to price insurance premiums properly to reflect risk, to set the reserve ratio in a

range around 1.25 percent, establish a system for providing credits, rebates and

surcharges, and to eliminate the SAIF exit fee reserve. FDIC also recommended

that Congress consider indexing deposit insurance coverage for inflation. During

the 107th Congress (2001-2002), hearings were held in the House and Senate

and legislation was introduced containing major elements of FDIC’s deposit

insurance reform proposals. The legislation was not enacted prior to congressional adjournment. During the 108th Congress (2003 - 2004), the House and

Senate again considered deposit insurance reform legislation; however, Congress

adjourned without enacting that legislation. Legislation similar to the deposit

insurance reform proposals of the 107th and 108th Congress may be introduced

in the 109th Congress, which begins in January 2005. If Congress enacts deposit

insurance reform legislation that contains the above recommendations, the new

law would have a significant impact on the BIF and the SAIF. FDIC management,

however, cannot predict which provisions, if any, will ultimately be enacted.

BIF
2

48

2. Summary of Significant Accounting Policies

General

These financial statements pertain to the financial position, results of operations,

and cash flows of the BIF and are presented in conformity with U.S. generally

accepted accounting principles (GAAP). These statements do not include reporting

for assets and liabilities of closed banks for which the FDIC acts as receiver.

Periodic and final accountability reports of the FDIC’s activities as receiver are

furnished to courts, supervisory authorities, and others as required.

Use of 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 loss on receivables from bank

resolutions, the estimated losses for anticipated failures and litigation, and the

postretirement benefit obligation. 

Cash Equivalents

Cash equivalents are short-term, highly liquid investments with original maturities

of three months or less. Cash equivalents consist primarily of Special U.S. Treasury

Certificates.

Investment in U.S. Treasury Obligations

BIF funds are required to be invested in obligations of the United States or 

in obligations guaranteed as to principal and interest by the United States; the

Secretary of the U.S.Treasury must approve all such investments in excess 

of $100,000. The Secretary has granted approval to invest BIF 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.

BIF’s investments in U.S. Treasury obligations are either classified as heldto-maturity or available-for-sale. Securities designated as held-to-maturity are 

shown at amortized cost. Amortized cost is the face value of securities plus 

the unamortized premium or less the unamortized discount. Amortizations are

computed on a daily basis from the date of acquisition to the date of maturity,

except for callable U.S.Treasury securities, which are amortized to the first 

anticipated call date. Securities designated as available-for-sale are shown at

market value, which approximates fair value. Unrealized gains and losses are

included in Comprehensive Income. Realized gains and losses are included 

in the Statement of Income and Fund Balance as components of Net Income.

Interest on both types of securities is calculated on a daily basis and recorded

monthly using the effective interest method. 
Bank Insurance Fund

BIF

49

Cost Allocations Among Funds

Operating expenses not directly charged to the BIF, the SAIF, and the FRF 

are allocated to all funds using workload-based allocation percentages. These

percentages are developed during the annual corporate planning process and

through supplemental functional analyses.

Capital Assets and Depreciation

The FDIC has designated the BIF as administrator of property and equipment

used in its operations. Consequently, the BIF includes the cost of these assets

in its financial statements and provides the necessary funding for them. The 

BIF charges the other funds usage fees representing an allocated share of its

annual depreciation expense. These usage fees are recorded as cost recoveries,

which reduce operating expenses.

The FDIC buildings are depreciated on a straight-line basis over a 35 to 50 year

estimated life. Leasehold improvements are capitalized and depreciated over 

the lesser of the remaining life of the lease or the estimated useful life of the

improvements, if determined to be material. Capital assets depreciated on a

straight-line basis over a five-year estimated life include mainframe equipment;

furniture, fixtures, and general equipment; and internal-use software. Personal

computer equipment is depreciated on a straight-line basis over a three-year

estimated life.

Disclosure about Recent Accounting Pronouncements

Recent accounting pronouncements have been adopted or deemed to be not

applicable to the financial statements as presented.

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.

Reclassifications

Reclassifications have been made in the 2003 financial statements to conform 

to the presentation used in 2004.

In 2004, the BIF changed the format of its Statement of Cash Flows from the

direct method to the indirect method for purposes of reporting cash flows from

operating activities. Accordingly, the Statement of Cash Flows for 2003 contains

certain reclassifications to conform to the BIF’s current financial statement format.

For 2003 and 2004, the reconciliation of net income to net cash provided by

operating activities is included in the Statement of Cash Flows. Consequently,

information pertaining to gross amounts of receipts and payments, not required

for presentation of the indirect method, is available within other footnotes to

these financial statements.
U.S. Treasury Obligations at December 31, 2004 

Dollars in Thousands 

Net Unrealized Unrealized

Yield at Face Carrying Holding Holding Market

Maturity●

Purchase Value Amount Gains Losses Value

Held-to-Maturity

Within 1 year 3.93% $ 6,290,000 $ 6,486,753 $ 50,757 $ (11,129) $ 6,526,381

After 1 year thru 5 years 4.94% 10,575,000 11,135,043 399,365 (10,104) 11,524,304

After 5 years thru 10 years 4.76% 4,360,000 4,374,344 197,842 (1,336) 4,570,850

Treasury Inflation-Indexed

After 1 year thru 5 years 3.82% 640,107 641,190 76,255 0 717,445

Total $ 21,865,107 $ 22,637,330 $ 724,219 $ (22,569) $ 23,338,980 

▼

3

50

3. Investment in U.S.Treasury Obligations, Net

As of December 31, 2004 and 2003, the book value of investments in 

U.S.Treasury obligations, net, was $32.1 billion and $30.5 billion, respectively.

As of December 31, 2004, the BIF held $6.6 billion of Treasury inflation-indexed

securities (TIIS). These securities are indexed to increases or decreases in the

Consumer Price Index for All Urban Consumers (CPI-U). Additionally, the BIF

held $6.6 billion of callable U.S. Treasury bonds at December 31, 2004. Callable

U.S.Treasury bonds may be called five years prior to the respective bonds’ stated

maturity on their semi-annual coupon payment dates upon 120 days notice. 

Available-for-Sale

Within 1 year 3.65% $ 1,560,000 $ 1,598,564 $ 10,129 $ (3,051) $ 1,605,642

After 1 year thru 5 years 3.72% 1,685,000 1,893,380 31,116 (11,945) 1,912,551

Treasury Inflation-Indexed

After 1 year thru 5 years 3.81% 2,270,854 2,268,756 236,566 0 2,505,322

After 5 years thru 10 years 3.75% 3,004,072 3,019,976 427,114 0 3,447,090

Total $ 8,519,926 $ 8,780,676 $ 704,925 $ (14,996) $ 9,470,605

Total Investment in U.S. Treasury Obligations, Net

Total $ 30,385,033 $ 31,418,006 $ 1,429,144 $ (37,565) $ 32,809,585

For purposes of this table, all callable securities are assumed to mature on their first call dates. Their yields at purchase are reported as their yield to first call date.

For TIIS, the yields in the above table are stated at their real yields at purchase, not their effective yields. Effective yields on TIIS include a long-term annual inflation

assumption as measured by the CPI-U. The long-term CPI-U consensus forecast is 2.2%, based on figures issued by the Congressional Budget Office and Blue Chip

Economic Indicators in early 2004.

All unrealized losses occurred during the last 12 months as a result of changes in market interest rates. FDIC has the ability and intent to hold the related securities until

maturity. As a result, all losses are considered temporary.

●

▼

■

■
51

BIF

Bank Insurance Fund

As of December 31, 2004 and 2003, the unamortized premium, net of the

unamortized discount, was $1 billion and $902 million, respectively.

U.S. Treasury Obligations at December 31, 2003 

Dollars in Thousands 

Net Unrealized Unrealized

Yield at Face Carrying Holding Holding Market

Maturity●

Purchase Value Amount Gains Losses Value

Held-to-Maturity

Within 1 year 5.05% $ 3,365,000 $ 3,449,985 $ 65,110 $ (275) $ 3,514,820

After 1 year thru 5 years 5.66% 9,985,000 10,244,862 830,414 0 11,075,276

After 5 years thru 10 years 5.42% 1,910,000 1,976,450 191,954 0 2,168,404

Treasury Inflation-Indexed

After 5 years thru 10 years 3.82% 620,450 621,776 78,947 0 700,723

Total $ 15,880,450 $ 16,293,073 $ 1,166,425 $ (275) $ 17,459,223 

▼

Available-for-Sale

Within 1 year 2.31% $ 5,810,000 $ 6,050,064 $ 32,642 $ (230) $ 6,082,476

After 1 year thru 5 years 4.68% 1,995,000 2,229,143 114,071 0 2,343,214

Treasury Inflation-Indexed

After 1 year thru 5 years 3.88% 1,225,321 1,215,319 139,813 0 1,355,132

After 5 years thru 10 years 3.75% 3,887,611 3,912,950 516,001 0 4,428,951

Total $ 12,917,932 $ 13,407,476 $ 802,527 $ (230) $ 14,209,773

Total Investment in U.S. Treasury Obligations, Net

Total $ 28,798,382 $ 29,700,549 $ 1,968,952 $ (505) $ 31,668,996

For purposes of this table, all callable securities are assumed to mature on their first call dates. Their yields at purchase are reported as their yield to first call date.

For TIIS, the yields in the above table are stated at their real yields at purchase, not their effective yields. Effective yields on TIIS include a long-term annual inflation

assumption as measured by the CPI-U. The long-term CPI-U consensus forecast is 2.4%, based on figures issued by the Office of Management and Budget and the

Congressional Budget Office in early 2003.

All unrealized losses occurred during the last 12 months as a result of changes in market interest rates. FDIC has the ability and intent to hold the related securities until

maturity within the coming year. As a result, all losses are considered temporary and will be eliminated upon redemption of the securities.

●

▼

■

■
Receivables From Bank Resolutions, Net at December 31 

Dollars in Thousands 

2004 2003

Receivables from closed banks $ 4,621,702 $ 4,914,901

Allowance for losses (4,246,399) (4,403,812) 

Total $ 375,303 $ 511,089 

4

52

4. Receivables From Bank Resolutions, Net

The receivables from bank resolutions include payments made by the BIF 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 BIF

receiverships are the main source of repayment of the BIF’s receivables from

closed banks. As of December 31, 2004, there were 31 active receiverships,

including 3 failures in the current year, with assets at failure of $151 million 

and BIF outlays of $133 million. 

As of December 31, 2004 and 2003, BIF receiverships held assets with 

a book value of $504 million and $756 million, respectively (including cash,

investments, and miscellaneous receivables of $269 million and $436 million 

at December 31, 2004 and 2003, respectively). The estimated cash recoveries

from the management and disposition of these assets that are used to derive

the allowance for losses are based on a sampling of receivership assets. The

sampled assets are generally valued by estimating future cash recoveries, net 

of applicable liquidation cost estimates, and then discounting these net cash

recoveries using current market-based risk factors based on a given asset’s 

type and quality. Resultant recovery estimates are extrapolated to the nonsampled assets in order to derive the allowance for loss on the receivable.

These estimated recoveries are regularly evaluated, but remain subject 

to uncertainties because of potential changes in economic and market 

conditions. Such uncertainties could cause the BIF’s actual recoveries to 

vary from the level currently estimated. 

As of December 31, 2004, an allowance for loss of $4.2 billion, or 92% of the

gross receivable, was recorded. Of the remaining 8% of the gross receivable,

the amount of credit risk is limited since almost two-thirds of the receivable 

will be repaid from receivership cash and investments.
5

6

Bank Insurance Fund

BIF

5. Property and Equipment, Net

The depreciation expense was $54 million and $55 million for 2004 and 2003,

respectively.

6. Contingent Liabilities for:

Anticipated Failure of Insured Institutions

The BIF records a contingent liability and a loss provision for BIF-insured institutions

(including Oakar and Sasser financial institutions) that are likely to fail within 

one year of the reporting date, absent some favorable event such as obtaining

additional capital or merging, when the liability becomes probable and reasonably

estimable.

The contingent liability is derived by applying expected failure rates and loss

rates to institutions based on supervisory ratings, balance sheet characteristics,

and projected capital levels. In addition, institution-specific analysis is performed

on those institutions where failure is imminent absent institution management

resolution of existing problems, or where additional information is available that

may affect the estimate of losses. As of December 31, 2004 and 2003, the 

contingent liabilities for anticipated failure of insured institutions were $8 million

and $178 million, respectively. 

In addition to these recorded contingent liabilities, the FDIC has identified 

additional risk in the financial services industry that could result in a material 

loss to the BIF should potentially vulnerable financial institutions ultimately fail.

This risk results from the presence of various high-risk banking business activities

that are particularly vulnerable to adverse economic and market conditions. Due

to the uncertainty surrounding such conditions in the future, there are institutions

other than those with losses included in the contingent liability for which the risk

of failure is less certain, but still considered reasonably possible. As a result of

these risks, the FDIC believes that it is reasonably possible that the BIF could

incur additional estimated losses up to approximately $0.3 billion.

53

Property and Equipment, Net at December 31 

Dollars in Thousands 

2004 2003 

Land $ 37,352 $ 37,352 

Buildings (includes construction-in-process) 221,494 180,187

Application software (includes work-in-process) 223,149 177,111

Furniture, fixtures, and equipment 133,556 97,682 

Accumulated depreciation (258,445) (204,952)

Total $ 357,106 $ 287,380
7

54

The accuracy of these estimates will largely depend on future economic and

market conditions. The FDIC’s Board of Directors has the statutory authority to

consider the contingent liability from anticipated failures of insured institutions

when setting assessment rates.

Litigation Losses

The BIF records an estimated loss for unresolved legal cases to the extent that

those losses are considered probable and reasonably estimable. In addition to

the amount recorded as probable, the FDIC has determined that losses from

unresolved legal cases totaling $51.5 million are reasonably possible.

Other Contingencies

Representations and Warranties

As part of the FDIC’s efforts to maximize the return from the sale of assets 

from bank resolutions, representations and warranties, and guarantees are

offered on certain loan sales. In general, the guarantees, representations, 

and warranties on loans sold relate to the completeness and accuracy of loan

documentation, the quality of the underwriting standards used, the accuracy 

of the delinquency status when sold, and the conformity of the loans with 

characteristics of the pool in which they were sold. The total amount of loans

sold subject to unexpired representations and warranties, and guarantees was

$3.8 billion as of December 31, 2004. There were no contingent liabilities from

any of the outstanding claims asserted in connection with representations and

warranties at December 31, 2004 and 2003, respectively.

In addition, future losses on representations and warranties, and guarantees

could be incurred over the remaining life of the loans sold, which is generally 

20 years or more. Consequently, the FDIC believes it is possible that additional

losses may be incurred by the BIF from the universe of outstanding contracts

with unasserted representation and warranty claims. However, because 

of the uncertainties surrounding the timing of when claims may be asserted, 

the FDIC is unable to reasonably estimate a range of loss to the BIF from 

outstanding contracts with unasserted representation and warranty claims.

7. Assessments

In compliance with provisions of the FDI Act, as amended, the FDIC uses a riskbased assessment system that charges higher rates to those institutions that

pose greater risks to the BIF. To arrive at a risk-based assessment for a particular

institution, the FDIC places each institution in one of nine risk categories based

on capital ratios and supervisory examination data. The majority of the financial

institutions are not assessed. Of those assessed, the assessment rate averaged

approximately 22 cents and 20 cents per $100 of assessable deposits for 2004

and 2003, respectively. During 2004 and 2003, $95 million and $80 million were

recognized as assessment income from BIF-member institutions, respectively.
8

Bank Insurance Fund

BIF

On November 15, 2004, the Board voted to retain the BIF assessment schedule

at the annual rate of 0 to 27 cents per $100 of assessable deposits for the first

semiannual period of 2005. The Board reviews assessment rates semiannually

to ensure that funds are available to satisfy the BIF’s obligations. If necessary,

the Board may impose more frequent rate adjustments or emergency special

assessments.

The FDIC is required to maintain the insurance funds at a designated reserve ratio

(DRR) of not less than 1.25 percent of estimated insured deposits (or a higher

percentage as circumstances warrant). If the reserve ratio falls below the DRR,

the FDIC is required to set semiannual assessment rates that are sufficient to

increase the reserve ratio to the DRR not later than one year after such rates 

are set, or in accordance with a recapitalization schedule of fifteen years or less.

As of September 30, 2004, the BIF reserve ratio was 1.32 percent of estimated

insured deposits. 

Assessments are also 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 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 BIF and is separate from

the regular assessments. The FDIC, as administrator of the BIF, acts solely 

as a collection agent for the FICO. During 2004 and 2003, $631 million and

$627 million, respectively, were collected from BIF-member institutions and

remitted to the FICO.

8. Operating Expenses

Operating expenses were $822 million for 2004, compared to $805 million for

2003. The chart below lists the major components of operating expenses.

55

Operating Expenses for the Years Ended December 31

Dollars in Thousands 

2004 2003

Salaries and benefits $ 575,100 $ 555,683

Outside services 84,947 81,851

Travel 36,089 41,773

Buildings and leased space 60,693 61,582

Equipment (not capitalized) 11,595 15,111

Depreciation of property and equipment 54,424 54,947

Other 20,102 20,689

Services billed to receiverships (20,569) (26,140)

Total $ 822,381 $ 805,496
10

9

56

9. Provision for Insurance Losses

Provision for insurance losses was a negative $269 million for 2004 and a negative

$931 million for 2003. The following chart lists the major components of the 

provision for insurance losses.

10. Employee Benefits

Pension Benefits, Savings Plans and Postemployment Benefits

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 BIF contributes a portion of pension benefits for

eligible employees, it does not account for the assets of either retirement system.

The BIF 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.

Eligible FDIC employees also may participate in a FDIC-sponsored tax-deferred

401(k) savings plan with matching contributions up to five percent. The BIF pays

its share of the employer’s portion of all related costs.

In October 2004, the FDIC announced a voluntary employee buyout program to 

a majority of its employees in an effort to further reduce identified staffing

excesses. The offer period for the buyout program is from November 1, 2004 

to May 2, 2005. Termination benefits include compensation of fifty percent of

the current salary for voluntary departures. The reasonably estimated total cost

associated with employees expected to accept the buyout offer is $23.7 million,

with BIF’s pro rata share totaling $20.6 million. During 2004, 129 employees 

left the FDIC. The total cost of this buyout was $6.9 million for 2004, with BIF’s

pro rata share totaling $6 million, which is included in the “Operating expenses”

and the “Accounts payable and other liabilities”line items.

Provision for Insurance Losses for the Years Ended December 31

Dollars in Thousands 

2004 2003

Valuation Adjustments:

Closed banks $ (82,758) $ (108,309)

Open bank assistance and other assets (13,260) (162)

Total Valuation Adjustments (96,018) (108,471)

Contingent Liabilities Adjustments:

Anticipated failure of insured institutions (170,005) (829,831)

Litigation losses (3,998) 345

Other contingencies 653 6,793

Total Contingent Liabilities Adjustments (173,350) (822,693)

Total $ (269,368) $ (931,164)
Bank Insurance Fund

BIF

In the event the FDIC does not meet its staffing reduction goal through the 

voluntary employee buyout program, the FDIC plans to conduct a reductionin-force (RIF). Because of uncertainties regarding the number of employees 

that will be subject to the RIF, the FDIC is unable to reasonably estimate the

related costs.

Postretirement Benefits Other Than Pensions

The FDIC provides certain life and dental insurance coverage for its eligible

retirees, the retirees’ beneficiaries, and covered dependents. Retirees eligible 

for life insurance coverage are those who have qualified due to: 1) immediate

enrollment upon appointment or five years of participation in the plan and 

2) eligibility for an immediate annuity. The life insurance program provides 

basic coverage at no cost to retirees and allows converting optional coverages 

to direct-pay plans. Dental coverage is provided to all retirees eligible for an

immediate annuity.

As of January 1, 2003, the FDIC ceased funding for postretirement benefits and

eliminated the separate entity in order to simplify the investment, accounting,

and reporting for the obligation. The separate entity had been established to

restrict the funds and to provide for the accounting and administration of these

benefits. As a result, the BIF received $89 million as its proportionate share 

of the plan assets and recognized a liability of $90 million in the “Accounts

payable and other liabilities” line item on its Balance Sheet. 

At December 31, 2004 and 2003, the BIF’s net postretirement benefit liability

recognized in the “Accounts payable and other liabilities” line item in the

Balance Sheet was $104 million and $98 million, respectively. In addition, 

the BIF’s expense for these benefits in 2004 and 2003 was $9.3 million and 

$11 million, respectively, which is included in the current and prior year’s 

operating expenses. Key actuarial assumptions used in the accounting for 

the plan include the discount rate, the rate of compensation increase, and 

the dental coverage trend rate.

57

Pension Benefits, Savings Plans Expenses and Postemployment Benefits for the Years Ended December 31

Dollars in Thousands 

2004 2003

Civil Service Retirement System $ 7,958 $ 7,740

Federal Employees Retirement System (Basic Benefit) 33,638 29,477

FDIC Savings Plan 19,604 17,397

Federal Thrift Savings Plan 13,715 12,066

Separation Incentive Payment 6,082 91

Total $ 80,997 $ 66,771
11

58

11. Commitments and Off-Balance-Sheet Exposure

Commitments:

Leased Space

The BIF’s allocated share of the FDIC’s lease commitments totals $105 million

for future years. The lease agreements contain escalation clauses resulting in

adjustments, usually on an annual basis. The allocation to the BIF of the FDIC’s

future lease commitments is based upon current relationships of the workloads

among the BIF and the SAIF. Changes in the relative workloads could cause 

the amounts allocated to the BIF in the future to vary from the amounts shown

below. The BIF recognized leased space expense of $36 million and $38 million

for the years ended December 31, 2004 and 2003, respectively.

Off-Balance-Sheet Exposure:

Asset Securitization Guarantees

As part of the FDIC’s efforts to maximize the return from the sale or disposition

of assets from bank resolutions, the FDIC has securitized some receivership

assets. To facilitate the securitizations, the BIF provided limited guarantees to

cover certain losses on the securitized assets up to a specified maximum. In

exchange for backing the limited guarantees, the BIF received assets from the

receiverships in an amount equal to the expected exposure under the guarantees.

Currently, there is one limited guarantee deal remaining with a term of approximately 20 years. This deal will be evaluated for possible termination in 2005. 

As of December 31, 2004 and 2003, the maximum off-balance-sheet exposure

was $37 million and $81 million, respectively.

Deposit Insurance

As of September 30, 2004, deposits insured by the BIF totaled approximately

$2.6 trillion. This would be the accounting loss if all depository institutions were

to fail and the acquired assets provided no recoveries.

Leased Space Commitments

Dollars in Thousands 

2005 2006 2007 2008 2009 2010/Thereafter

$ 36,121 $ 25,948 $ 16,814 $ 11,487 $ 10,081 $ 4,424
12

Bank Insurance Fund

BIF

12. Disclosures About the Fair Value of Financial Instruments

Cash equivalents are short-term, highly liquid investments and are shown at 

current value. The fair market value of the investment in U.S. Treasury obligations

is disclosed in Note 3 and is based on current market prices. The carrying amount

of interest receivable on investments, short-term receivables, and accounts

payable and other liabilities approximates their fair market value, due to their

short maturities and/or comparability with current interest rates.

The net receivables from bank resolutions primarily include the BIF’s subrogated

claim arising from payments to insured depositors. The receivership 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 BIF’s allowance for loss against the net receivables from

bank resolutions. Therefore, the corporate subrogated claim indirectly includes

the effect of discounting and should not be viewed as being stated in terms 

of nominal cash flows.

Although the value of the corporate subrogated claim is influenced by valuation

of receivership assets (see Note 4), such receivership 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 its fair market value.

The FDIC believes that a sale to the private sector of the corporate claim would

require indeterminate, but substantial, discounts for an interested party to 

profit from these assets because of credit and other risks. In addition, the 

timing of receivership payments to the BIF on the subrogated claim does 

not necessarily correspond with the timing of collections on receivership

assets. Therefore, the effect of discounting used by receiverships should 

not necessarily be viewed as producing an estimate of market value for 

the net receivables from bank resolutions.

59
1

Savings 

Association 

Insurance 

Fund

December 31, 2004

and 2003
SAIF

Savings Association Insurance Fund

61

Federal Deposit Insurance Corporation

Savings Association Insurance Fund Balance Sheet at December 31

Dollars in Thousands 

2004 2003

Assets

Cash and cash equivalents $ 644,346 $ 827,141

Cash and other assets: Restricted for SAIF-member exit fees (Note 3) 

(Includes cash and cash equivalents of $56.5 million and $231.9 million

at December 31, 2004 and 2003, respectively) 328,394 319,286

Investment in U.S. Treasury obligations, net: (Note 4)

Held-to-maturity securities 8,835,964 6,823,709

Available-for-sale securities 2,720,315 4,152,048

Interest receivable on investments and other assets, net 200,204 188,189

Receivables from thrift resolutions, net (Note 5) 346,923 273,242

Total Assets $ 13,076,146 $ 12,583,615

Liabilities

Accounts payable and other liabilities $ 25,568 $ 20,540

Contingent liabilities for: (Note 6)

Anticipated failure of insured institutions 1,957 3,192

Litigation losses 39 532

SAIF-member exit fees and investment proceeds held in escrow (Note 3) 328,394 319,286

Total Liabilities 355,958 343,550

Commitments and off-balance-sheet exposure (Note 11)

Fund Balance

Accumulated net income 12,482,227 11,965,776

Unrealized gain on available-for-sale securities, net (Note 4) 237,961 274,289

Total Fund Balance 12,720,188 12,240,065

Total Liabilities and Fund Balance $ 13,076,146 $ 12,583,615

The accompanying notes are an integral part of these financial statements.
62

Federal Deposit Insurance Corporation

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

Dollars in Thousands 

2004 2003

Revenue

Interest on U.S. Treasury obligations $ 555,592 $ 532,474 

Assessments (Note 7) 8,891 14,594 

Other revenue 292 192 

Total Revenue 564,775 547,260 

Expenses and Losses

Operating expenses (Note 8) 120,282 129,584 

Provision for insurance losses (Note 9) (72,162) (82,489) 

Insurance and other expenses 204 105 

Total Expenses and Losses 48,324 47,200 

Net Income 516,451 500,060 

Unrealized loss on available-for-sale securities, net (36,328) (6,733)

Comprehensive Income 480,123 493,327 

Fund Balance - Beginning 12,240,065 11,746,738 

Fund Balance - Ending $ 12,720,188 $ 12,240,065 

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

63

Savings Association Insurance Fund

Federal Deposit Insurance Corporation

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

Dollars in Thousands 

2004 2003

Operating Activities

Net Income: $ 516,451 $ 500,060

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

Amortization of U.S.Treasury obligations 262,317 155,992

Treasury inflation-indexed securities (TIIS) inflation adjustment (61,431) (38,943)

Provision for losses (72,162) (82,489)

Change in Operating Assets and Liabilities:

Decrease in unamortized premium and discount of U.S. Treasury Obligations (restricted) 2,443 931

(Increase) in entrance and exit fees receivable, including interest receivable 

on investments and other assets (16,288) (32,810)

(Increase)/Decrease in receivables from thrift resolutions (2,635) 8,699

Increase in accounts payable and other liabilities 5,028 13,440

(Decrease) in contingent liabilities for litigation losses 0 (209)

Increase in exit fees and investment proceeds held in escrow 9,107 7,422

Net Cash Provided by Operating Activities 642,830 532,093

Investing Activities

Provided by:

Maturity of U.S.Treasury obligations, held-to-maturity 1,690,000 1,170,000

Maturity of U.S. Treasury obligations, available-for-sale 1,360,000 575,000

Used by:

Purchase of U.S. Treasury obligations, held-to-maturity (4,051,084) (2,305,056)

Purchase of U.S. Treasury obligations, available-for-sale 0 (1,008,066)

Net Cash Used by Investing Activities (1,001,084) (1,568,122)

Net Decrease in Cash and Cash Equivalents (358,254) (1,036,029)

Cash and Cash Equivalents - Beginning 1,059,052 2,095,081

Unrestricted Cash and Cash Equivalents - Ending 644,346 827,141

Restricted Cash and Cash Equivalents - Ending 56,452 231,911

Cash and Cash Equivalents - Ending $ 700,798 $ 1,059,052

The accompanying notes are an integral part of these financial statements.
1

1. Legislation and Operations of the Savings Association 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,

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 funds. FDIC is the administrator of 

the Savings Association Insurance Fund (SAIF), the Bank Insurance Fund (BIF),

and the FSLIC Resolution Fund (FRF), which are maintained separately to carry

out their respective mandates. The SAIF and the BIF are insurance funds 

responsible for protecting insured thrift and bank depositors from loss due 

to institution failures. These insurance funds must be maintained at not less 

than 1.25 percent of estimated insured deposits or a higher percentage as 

circumstances warrant. The FRF is a resolution fund responsible for the sale 

of remaining assets and satisfaction of liabilities associated with the former

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

Trust Corporation. 

An active institution’s insurance fund membership and primary federal 

supervisor are generally determined by the institution's charter type. Deposits 

of SAIF-member institutions are generally insured by the SAIF; SAIF members

are predominantly thrifts supervised by the Office of Thrift Supervision (OTS).

Deposits of BIF-member institutions are generally insured by the BIF; BIF

members are predominantly commercial and savings banks supervised by the

FDIC, the Office of the Comptroller of the Currency, or the Federal Reserve Board.

In addition to traditional thrifts and banks, several other categories of institutions

exist. A member of one insurance fund may, with the approval of its primary 

federal supervisor, merge, consolidate with, or acquire the deposit liabilities of 

an institution that is a member of the other insurance fund without changing

insurance fund status for the acquired deposits. These institutions with deposits

insured by both insurance funds are referred to as Oakar financial institutions. 

In addition, SAIF-member thrifts can convert to a bank charter and retain their

SAIF membership. These institutions are referred to as Sasser financial institutions.

Likewise, BIF-member banks can convert to a thrift charter and retain their BIF

membership. 

Operations of the SAIF

The primary purpose of the SAIF is to: 1) insure the deposits and protect 

the depositors of SAIF-insured institutions and 2) resolve SAIF-insured failed

institutions upon appointment of FDIC as receiver in a manner that will result 

in the least possible cost to the SAIF. 

Savings

Association

Insurance 

Fund

Notes to the 

Financial 

Statements 

December 31, 2004

and 2003
SAIF

Savings Association Insurance Fund

65

The SAIF is primarily funded from: 1) interest earned on investments in 

U.S. Treasury obligations and 2) deposit insurance assessments. Additional 

funding sources are borrowings from the U.S. Treasury, the Federal Financing Bank

(FFB), and the Federal Home Loan Banks, if necessary. The FDIC has borrowing

authority from the U.S. Treasury up to $30 billion for insurance purposes on

behalf of the SAIF and the BIF. 

A statutory formula, known as the Maximum Obligation Limitation (MOL), limits

the amount of obligations the SAIF can incur to the sum of its cash, 90% of the

fair market value of other assets, and the amount authorized to be borrowed from

the U.S. Treasury. The MOL for the SAIF was $21.0 billion and $20.3 billion as 

of December 31, 2004 and 2003, respectively.

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 SAIF

assets and liabilities to ensure that receivership proceeds are distributed in

accordance with applicable laws and regulations. Accordingly, 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.

Recent Legislative Initiatives

In April 2001, FDIC issued recommendations for deposit insurance reform. The

FDIC recommendations included merging SAIF and BIF and improving FDIC’s

ability to manage the merged fund by permitting the FDIC Board of Directors 

to price insurance premiums properly to reflect risk, to set the reserve ratio in a

range around 1.25 percent, establish a system for providing credits, rebates and

surcharges, and to eliminate the SAIF exit fee reserve. FDIC also recommended

that Congress consider indexing deposit insurance coverage for inflation. 

During the 107th Congress (2001-2002), hearings were held in the House and

Senate and legislation was introduced containing major elements of FDIC’s

deposit insurance reform proposals. The legislation was not enacted prior to 

congressional adjournment. During the 108th Congress (2003 - 2004), the House

and Senate again considered deposit insurance reform legislation; however,

Congress adjourned without enacting that legislation. Legislation similar to the

deposit insurance reform proposals of the 107th and 108th Congress may be

introduced in the 109th Congress, which begins in January, 2005. If Congress

enacts deposit insurance reform legislation that contains the above recommendations, the new law would have a significant impact on the SAIF and the BIF. 

FDIC management, however, cannot predict which provisions, if any, will 

ultimately be enacted.
2

66

2. Summary of Significant Accounting Policies

General

These financial statements pertain to the financial position, results of operations,

and cash flows of the SAIF and are presented in conformity with U.S. generally

accepted accounting principles (GAAP). These statements do not include 

reporting for assets and liabilities of closed thrift institutions for which the FDIC

acts as receiver. Periodic and final accountability reports of the FDIC’s activities

as receiver are furnished to courts, supervisory authorities, and others as required.

Use of 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 loss on receivables from thrift

resolutions, the estimated losses for anticipated failures and litigation, and the

postretirement benefit obligation. 

Cash Equivalents

Cash equivalents are short-term, highly liquid investments with original maturities

of three months or less. Cash equivalents consist primarily of Special U.S. Treasury

Certificates. 

Investment in U.S. Treasury Obligations

SAIF funds are required to be invested in obligations of the United States or 

in obligations guaranteed as to principal and interest by the United States; the

Secretary of the U.S. Treasury must approve all such investments in excess of

$100,000. The Secretary has granted approval to invest SAIF 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.

SAIF’s investments in U.S. Treasury obligations are either classified as heldto-maturity or available-for-sale. Securities designated as held-to-maturity are

shown at amortized cost. Amortized cost is the face value of securities plus 

the unamortized premium or less the unamortized discount. Amortizations are

computed on a daily basis from the date of acquisition to the date of maturity,

except for callable U.S. Treasury securities, which are amortized to the first 

anticipated call date. Securities designated as available-for-sale are shown at

market value, which approximates fair value. Unrealized gains and losses are

included in Comprehensive Income. Realized gains and losses are included 

in the Statement of Income and Fund Balance as components of Net Income.

Interest on both types of securities is calculated on a daily basis and recorded

monthly using the effective interest method. 
3

SAIF

Savings Association Insurance Fund

67

Cost Allocations Among Funds

Operating expenses not directly charged to the SAIF, the BIF, and the FRF 

are allocated to all funds using workload-based allocation percentages. These

percentages are developed during the annual corporate planning process and

through supplemental functional analyses.

Disclosure about Recent Accounting Pronouncements

Recent accounting pronouncements have been adopted or deemed to be not

applicable to the financial statements as presented.

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.

Reclassifications

Reclassifications have been made in the 2003 financial statements to conform 

to the presentation used in 2004.

In 2004, the SAIF changed the format of its Statement of Cash Flows from the

direct method to the indirect method for purposes of reporting cash flows from

operating activities. Accordingly, the Statement of Cash Flows for 2003 contains

certain reclassifications to conform to the SAIF’s current financial statement 

format. For 2003 and 2004, the reconciliation of net income to net cash provided

by operating activities is included in the Statement of Cash Flows. Consequently,

information pertaining to gross amounts of receipts and payments, not required

for presentation of the indirect method, is available within other footnotes to

these financial statements.

3. Cash and Other Assets: Restricted for SAIF-Member Exit Fees 

The SAIF collects entrance and exit fees for conversion transactions when an

insured depository institution converts from the BIF to the SAIF (resulting in an

entrance fee) or from the SAIF to the BIF (resulting in an exit fee). Regulations

approved by the FDIC’s Board of Directors (Board) and published in the Federal

Register on March 21, 1990, directed that exit fees paid to the SAIF be held 

in escrow. 

The FDIC and the Secretary of the Treasury will determine when it is no longer

necessary to escrow such funds for the payment of interest on obligations 

previously issued by the FICO. These escrowed exit fees are invested in 

U.S. Treasury securities pending determination of ownership. The interest 

earned is also held in escrow. There were no conversion transactions during

2004 and 2003 that resulted in an entrance/exit fee to the SAIF.
U.S. Treasury Obligations at December 31, 2004 (Restricted for SAIF-Member Exit Fees)

Dollars in Thousands

Held-to-Maturity

Net Unrealized Unrealized

Yield at Face Carrying Holding Holding Market

Maturity Purchase Value Amount Gains Losses Value

Within 1 year 2.36% $ 70,000 $ 73,879 $ 0 $ (162) $ 73,717

After 1 year thru 5 years 4.40% 104,000 115,725 2,852 (60) 118,517

After 5 years thru 10 years 4.67% 80,000 77,771 3,184 0 80,955

Total $ 254,000 $ 267,375 $ 6,036 $ (222) $ 273,189

68

As of December 31, 2004 and 2003, the unamortized premium, net of the

unamortized discount, was $13.4 million and $2.5 million, respectively.

Cash and Other Assets: Restricted for SAIF-Member Exit Fees at December 31

Dollars in Thousands 

2004 2003

Cash and cash equivalents $ 56,452 $ 231,911

Investment in U.S. Treasury obligations, net 267,375 86,471

Interest receivable on U.S. Treasury obligations 4,567 904

Total $ 328,394 $ 319,286

●

U.S. Treasury Obligations at December 31, 2003 (Restricted for SAIF-Member Exit Fees)

Dollars in Thousands

Held-to-Maturity

Net Unrealized Unrealized

Yield at Face Carrying Holding Holding Market

Maturity Purchase Value Amount Gains Losses Value

Within 1 year 5.79% $ 20,000 $ 20,267 $ 683 $ 0 $ 20,950

After 1 year thru 5 years 5.20% 64,000 66,204 5,349 0 71,553

Total $ 84,000 $ 86,471 $ 6,032 $ 0 $ 92,503 

All unrealized losses occurred during the last 12 months as a result of changes in market interest rates. FDIC has the ability and intent to hold the related securities until

maturity. As a result, all losses are considered temporary.

●
4

69

4. Investment in U.S. Treasury Obligations, Net

As of December 31, 2004 and 2003, the book value of investments in 

U.S. Treasury obligations, net, was $11.6 billion and $11.0 billion, respectively.

As of December 31, 2004, the SAIF held $2.2 billion of Treasury inflationindexed securities (TIIS). These securities are indexed to increases or decreases 

in the Consumer Price Index for All Urban Consumers (CPI-U). Additionally, 

the SAIF held $2.4 billion of callable U.S. Treasury bonds at December 31, 2004.

Callable U.S. Treasury bonds may be called five years prior to the respective

bonds’ stated maturity on their semi-annual coupon payment dates upon 

120 days notice.

Savings Association Insurance Fund

SAIF
Available-for-Sale

Within 1 year 5.00% $ 270,000 $ 275,656 $ 1,831 $ 0 $ 277,487

After 1 year thru 5 years 4.10% 385,000 443,689 10,916 (1,034) 453,571

Treasury Inflation-Indexed

After 1 year thru 5 years 4.07% 859,729 853,047 101,420 0 954,467

After 5 years thru 10 years 3.63% 904,362 909,962 124,828 0 1,034,790

Total $ 2,419,091 $ 2,482,354 $ 238,995 $ (1,034) $ 2,720,315

Total Investment in U.S. Treasury Obligations, Net

Total $ 10,955,379 $ 11,318,318 $ 579,034 $ (12,416) $ 11,884,936

For purposes of this table, all callable securities are assumed to mature on their first call dates. Their yields at purchase are reported as their yield to first call date.

For TIIS, the yields in the above table are stated at their real yields at purchase, not their effective yields. Effective yields on TIIS include a long-term annual inflation

assumption as measured by the CPI-U. The long-term CPI-U consensus forecast is 2.2%, based on figures issued by the Congressional Budget Office and Blue Chip

Economic Indicators in early 2004.

All unrealized losses occurred during the last 12 months as a result of changes in market interest rates. FDIC has the ability and intent to hold the related securities 

until maturity. As a result, all losses are considered temporary.

●

▼

■

70

U.S. Treasury Obligations at December 31, 2004 (Unrestricted)

Dollars in Thousands

Net Unrealized Unrealized

Yield at Face Carrying Holding Holding Market

Maturity Purchase Value Amount Gains Losses Value

Held-to-Maturity

Within 1 year 3.13% $ 1,860,000 $ 1,935,365 $ 9,296 $ (4,608) $ 1,940,053

After 1 year thru 5 years 4.93% 4,540,000 4,755,416 200,907 (6,373) 4,949,950

After 5 years thru 10 years 4.97% 1,900,000 1,910,232 107,408 (401) 2,017,239

Treasury Inflation-Indexed

After 1 year thru 5 years 3.86% 236,288 234,951 22,428 0 257,379

Total $ 8,536,288 $ 8,835,964 $ 340,039 $ (11,382) $ 9,164,621 

● ▼ ■
SAIF

Savings Association Insurance Fund

71

Available-for-Sale

Within 1 year 3.15% $ 1,360,000 $ 1,413,730 $ 16,265 $ (99) $ 1,429,896

After 1 year thru 5 years 4.43% 655,000 756,058 34,530 0 790,588

Treasury Inflation-Indexed

After 1 year thru 5 years 4.11% 280,564 276,009 34,278 0 310,287

After 5 years thru 10 years 3.79% 1,429,352 1,431,962 189,315 0 1,621,277

Total $ 3,724,916 $ 3,877,759 $ 274,388 $ (99) $ 4,152,048

Total Investment in U.S. Treasury Obligations, Net

Total $ 10,383,948 $ 10,701,468 $ 766,796 $ (221) $ 11,468,043

For purposes of this table, all callable securities are assumed to mature on their first call dates. Their yields at purchase are reported as their yield to first call date.

For TIIS, the yields in the above table are stated at their real yields at purchase, not their effective yields. Effective yields on TIIS include a long-term annual inflation

assumption as measured by the CPI-U. The long-term CPI-U consensus forecast is 2.4%, based on figures issued by the Office of Management and Budget and the

Congressional Budget Office in early 2003.

All unrealized losses occurred during the last 12 months as a result of changes in market interest rates. FDIC has the ability and intent to hold the related securities until

maturity within the coming year. As a result, all losses are considered temporary and will be eliminated upon redemption of the securities.

●

▼

■

U.S. Treasury Obligations at December 31, 2003 (Unrestricted)

Dollars in Thousands

Net Unrealized Unrealized

Yield at Face Carrying Holding Holding Market

Maturity Purchase Value Amount Gains Losses Value

Held-to-Maturity

Within 1 year 2.86% $ 1,670,000 $ 1,742,136 $ 12,009 $ (122) $ 1,754,023

After 1 year thru 5 years 5.59% 3,185,000 3,250,611 284,578 0 3,535,189

After 5 years thru 10 years 5.54% 1,575,000 1,603,674 169,813 0 1,773,487

Treasury Inflation-Indexed

After 1 year thru 5 years 3.86% 229,032 227,288 26,008 0 253,296

Total $ 6,659,032 $ 6,823,709 $ 492,408 $ (122) $ 7,315,995 

● ▼ ■

As of December 31, 2004 and 2003, the unamortized premium, net of the

unamortized discount, was $362.9 million and $317.5 million, respectively.
5

72

5. Receivables From Thrift Resolutions, Net

The receivables from thrift resolutions include payments made by the SAIF 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 SAIF

receiverships are the main source of repayment of the SAIF’s receivables from

closed thrifts. As of December 31, 2004, there were 3 active receiverships,

including 1 thrift failure in the current year, with assets at failure of $15.3 million

and SAIF outlays of $5.6 million. 

As of December 31, 2004 and 2003, SAIF receiverships held assets with 

a book value of $483 million and $449 million, respectively (including cash,

investments, and miscellaneous receivables of $182 million and $117 million 

at December 31, 2004 and 2003, respectively). The estimated cash recoveries

from the management and disposition of these assets that are used to derive

the allowance for losses are based on a sampling of receivership assets. The

sampled assets are generally valued by estimating future cash recoveries, net 

of applicable liquidation cost estimates, and then discounting these net cash

recoveries using current market-based risk factors based on a given asset’s type

and quality. Resultant recovery estimates are extrapolated to the non-sampled

assets in order to derive the allowance for loss on the receivable. These estimated

recoveries are regularly evaluated, but remain subject to uncertainties because of

potential changes in economic and market conditions. Such uncertainties could

cause the SAIF’s actual recoveries to vary from the level currently estimated. 

At December 31, 2004, about 99% of the SAIF’s $347 million net receivable 

will be repaid from assets related to the Superior receivership (which failed in

July 2001). These assets primarily consist of cash, investments, and a promissory

note arising from a settlement with the owners of the failed institution. The

credit risk related to the promissory note is limited since half of the outstanding

note is secured by a letter of credit and the remaining half is subject to the 

creditworthiness of the payor of the note. Annual monitoring of the creditworthiness of the payor is performed and currently indicates a low risk of 

non-performance.

Receivables From Thrift Resolutions, Net at December 31 

Dollars in Thousands 

2004 2003

Receivables from closed thrifts $ 710,217 $ 709,389

Allowance for losses (363,294) (436,147) 

Total $ 346,923 $ 273,242 
SAIF

6

Savings Association Insurance Fund

73

6. Contingent Liabilities for:

Anticipated Failure of Insured Institutions

The SAIF records a contingent liability and a loss provision for SAIF-insured 

institutions (including Oakar and Sasser financial institutions) that are likely 

to fail within one year of the reporting date, absent some favorable event such

as obtaining additional capital or merging, when the liability becomes probable

and reasonably estimable.

The contingent liability is derived by applying expected failure rates and loss

rates to institutions based on supervisory ratings, balance sheet characteristics,

and projected capital levels. In addition, institution-specific analysis is performed

on those institutions where failure is imminent absent institution management

resolution of existing problems, or where additional information is available that

may affect the estimate of losses. As of December 31, 2004 and 2003, the 

contingent liabilities for anticipated failure of insured institutions were $2 million

and $3 million, respectively. 

In addition to these recorded contingent liabilities, the FDIC has identified additional

risk in the financial services industry that could result in a material loss to the

SAIF should potentially vulnerable financial institutions ultimately fail. This risk

results from the presence of various high-risk banking business activities that 

are particularly vulnerable to adverse economic and market conditions. Due to

the uncertainty surrounding such conditions in the future, there are institutions

other than those with losses included in the contingent liability for which the risk

of failure is less certain, but still considered reasonably possible. As a result of

these risks, the FDIC believes that it is reasonably possible that the SAIF could

incur additional estimated losses up to approximately $0.1 billion.

The accuracy of these estimates will largely depend on future economic and

market conditions. The FDIC’s Board of Directors has the statutory authority to

consider the contingent liability from anticipated failures of insured institutions

when setting assessment rates.

Litigation Losses

The SAIF records an estimated loss for unresolved legal cases to the extent

those losses are considered probable and reasonably estimable. In addition to

the amount recorded as probable, the FDIC has determined that losses from

unresolved legal cases totaling $206.5 thousand are reasonably possible.

Other Contingencies

Representations and Warranties

As part of the FDIC’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. In general, the guarantees, representations, and warranties

on loans sold relate to the completeness and accuracy of loan documentation,
7

74

the quality of the underwriting standards used, the accuracy of the delinquency

status when sold, and the conformity of the loans with characteristics of 

the pool in which they were sold. The total amount of loans sold subject 

to unexpired representations and warranties, and guarantees was $4.7 billion 

as of December 31, 2004. SAIF did not establish a liability for all outstanding

claims asserted in connection with representations and warranties because 

the receiverships have sufficient funds to pay for such claims.

In addition, future losses on representations and warranties, and guarantees

could be incurred over the remaining life of the loans sold, which is generally 

20 years or more. Consequently, the FDIC believes it is possible that additional

losses may be incurred by the SAIF from the universe of outstanding contracts

with unasserted representation and warranty claims. However, because of the

uncertainties surrounding the timing of when claims may be asserted, the FDIC

is unable to reasonably estimate a range of loss to the SAIF from outstanding

contracts with unasserted representation and warranty claims.

7. Assessments

In compliance with provisions of the FDI Act, as amended, the FDIC uses a 

risk-based assessment system that charges higher rates to those institutions

that pose greater risks to the SAIF. To arrive at a risk-based assessment for 

a particular institution, the FDIC places each institution in one of nine risk 

categories based on capital ratios and supervisory examination data. The majority

of the financial institutions are not assessed. Of those assessed, the assessment

rate averaged approximately 8 cents and 14 cents per $100 of assessable

deposits for 2004 and 2003, respectively. During 2004 and 2003, $9 million 

and $15 million were recognized as assessment income from SAIF-member

institutions, respectively. On November 15, 2004, the Board voted to retain 

the SAIF assessment schedule at the annual rate of 0 to 27 cents per $100 

of assessable deposits for the first semiannual period of 2005. The Board

reviews assessment rates semiannually to ensure that funds are available 

to satisfy the SAIF’s obligations. If necessary, the Board may impose more 

frequent rate adjustments or emergency special assessments. 

The FDIC is required to maintain the insurance funds at a designated reserve

ratio (DRR) of not less than 1.25 percent of estimated insured deposits (or a

higher percentage as circumstances warrant). If the reserve ratio falls below 

the DRR, the FDIC is required to set semiannual assessment rates that are 

sufficient to increase the reserve ratio to the DRR not later than one year after

such rates are set, or in accordance with a recapitalization schedule of fifteen

years or less. As of September 30, 2004, the SAIF reserve ratio was 1.33 percent

of estimated insured deposits.

Assessments are also 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 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 SAIF and is separate from
9

SAIF

8

Savings Association Insurance Fund

75

the regular assessments. The FDIC, as administrator of the SAIF, acts solely 

as a collection agent for the FICO. During 2004 and 2003, $161 million and

$162 million, respectively, were collected from SAIF-member institutions and

remitted to the FICO.

8. Operating Expenses

Operating expenses totaled $120 million for 2004, compared to $130 million for

2003. The chart below lists the major components of operating expenses.

9. Provision for Insurance Losses

Provision for insurance losses was a negative $72 million for 2004 and a negative

$82 million for 2003. The following chart lists the major components of the 

provision for insurance losses.

Operating Expenses for the Years Ended December 31

Dollars in Thousands 

2004 2003

Salaries and benefits $ 81,649 $ 87,963

Outside services 14,457 15,038

Travel 4,357 5,801

Buildings and leased space 10,662 12,132

Equipment 9,649 9,374

Other 2,920 3,189

Services billed to receiverships (3,412) (3,913)

Total $ 120,282 $ 129,584

Provision for Insurance Losses for the Years Ended December 31

Dollars in Thousands 

2004 2003

Valuation Adjustments:

Closed thrifts $ (70,435) $ 4,684

Total Valuation Adjustments (70,435) 4,684

Contingent Liabilities Adjustments:

Anticipated failure of insured institutions (1,235) (87,301)

Litigation losses (492) 128

Total Contingent Liabilities Adjustments (1,727) (87,173)

Total $ (72,162) $ (82,489)
10

76

10. Employee Benefits

Pension Benefits, Savings Plans and Postemployment Benefits

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 SAIF contributes a portion of pension

benefits for eligible employees, it does not account for the assets of either

retirement system. The SAIF 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. 

Eligible FDIC employees also may participate in a FDIC-sponsored tax-deferred

401(k) savings plan with matching contributions up to five percent. The SAIF

pays its share of the employer’s portion of all related costs.

In October 2004, the FDIC announced a voluntary employee buyout program 

to a majority of its employees in an effort to further reduce identified staffing

excesses. The offer period for the buyout program is from November 1, 2004 

to May 2, 2005. Termination benefits include compensation of fifty percent of 

the current salary for voluntary departures. The reasonably estimated total cost

associated with employees expected to accept the buyout offer is $23.7 million,

with SAIF’s pro rata share totaling $3.1 million. During 2004, 129 employees 

left the FDIC. The total cost of this buyout was $6.9 million for 2004, with 

SAIF’s pro rata share totaling $903 thousand, which is included in the “Operating

expenses”and the “Accounts payable and other liabilities”line items.

In the event the FDIC does not meet its staffing reduction goal through the 

voluntary employee buyout program, the FDIC plans to conduct a reductionin-force (RIF). Because of uncertainties regarding the number of employees 

that will be subject to the RIF, the FDIC is unable to reasonably estimate the

related costs.

Pension Benefits, Savings Plans Expenses and Postemployment Benefits for the Years Ended December 31

Dollars in Thousands 

2004 2003

Civil Service Retirement System $ 1,182 $ 1,258

Federal Employees Retirement System (Basic Benefit) 4,793 4,682

FDIC Savings Plan 2,813 2,788

Federal Thrift Savings Plan 1,934 1,900

Separation Incentive Payment 909 14

Total $ 11,631 $ 10,642
SAIF

Savings Association Insurance Fund

77

Postretirement Benefits Other Than Pensions

The FDIC provides certain life and dental insurance coverage for its eligible

retirees, the retirees’ beneficiaries, and covered dependents. Retirees eligible 

for life insurance coverage are those who have qualified due to: 1) immediate

enrollment upon appointment or five years of participation in the plan and 

2) eligibility for an immediate annuity. The life insurance program provides basic

coverage at no cost to retirees and allows converting optional coverages to

direct-pay plans. Dental coverage is provided to all retirees eligible for an 

immediate annuity.

As of January 1, 2003, the FDIC ceased funding for postretirement benefits 

and eliminated the separate entity in order to simplify the investment, accounting,

and reporting for the obligation. The separate entity had been established to

restrict the funds and to provide for the accounting and administration of these

benefits. As a result, the SAIF received $14 million as its proportionate share 

of the plan assets and recognized a liability of $14 million in the ”Accounts

payable and other liabilities” line item on its Balance Sheet. 

At December 31, 2004 and 2003, the SAIF’s net postretirement benefit liability

recognized in the “Accounts payable and other liabilities” line item in the Balance

Sheet was $15.7 million and $15 million, respectively. In addition, the SAIF’s

expense for these benefits in 2004 and 2003 was $1.4 million and $1 million,

respectively, which is included in the current and prior year’s operating expenses.

Key actuarial assumptions used in the accounting for the plan include the discount

rate, the rate of compensation increase, and the dental coverage trend rate.
1111. Commitments and Off-Balance-Sheet Exposure

Commitments:

Leased Space

The SAIF’s allocated share of the FDIC’s lease commitments totals $14.4 million

for future years. The lease agreements contain escalation clauses resulting in

adjustments, usually on an annual basis. The allocation to the SAIF of the FDIC’s

future lease commitments is based upon current relationships of the workloads

among the SAIF and the BIF. Changes in the relative workloads could cause 

the amounts allocated to the SAIF in the future to vary from the amounts shown

below. The SAIF recognized leased space expense of $6.9 million and $7.9 million

for the years ended December 31, 2004 and 2003, respectively. 

Off-Balance-Sheet Exposure:

Deposit Insurance

As of September 30, 2004, deposits insured by the SAIF totaled approximately

$944 billion. This would be the accounting loss if all depository institutions were

to fail and the acquired assets provided no recoveries.

78

Leased Space Commitments

Dollars in Thousands 

2005 2006 2007 2008 2009 2010/Thereafter

$ 4,963 $ 3,559 $ 2,308 $ 1,579 $ 1,380 $ 603
12

SAIF

Savings Association Insurance Fund

79

12. Disclosures About the Fair Value of Financial Instruments

Cash equivalents are short-term, highly liquid investments and are shown at 

current value. The fair market value of the investment in U.S.Treasury obligations

is disclosed in Note 3 and 4 and is based on current market prices. The carrying

amount of interest receivable on investments, short-term receivables, and accounts

payable and other liabilities approximates their fair market value, due to their

short maturities and/or comparability with current interest rates.

The net receivables from thrift resolutions primarily include the SAIF's subrogated

claim arising from payments to insured depositors. The receivership 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 SAIF’s allowance for loss against the net receivables from

thrift resolutions. Therefore, the corporate subrogated claim indirectly includes

the effect of discounting and should not be viewed as being stated in terms 

of nominal cash flows.

Although the value of the corporate subrogated claim is influenced by valuation

of receivership assets (see Note 5), such receivership 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 its fair market value.

The FDIC believes that a sale to the private sector of the corporate claim would

require indeterminate, but substantial, discounts for an interested party to profit

from these assets because of credit and other risks. In addition, the timing of

receivership payments to the SAIF on the subrogated claim does not necessarily

correspond with the timing of collections on receivership assets. Therefore, the

effect of discounting used by receiverships should not necessarily be viewed 

as producing an estimate of market value for the net receivables from thrift 

resolutions.
1

FSLIC

Resolution 

Fund

December 31, 2004

and 2003
FRF

81

FSLIC Resolution Fund

Federal Deposit Insurance Corporation

FSLIC Resolution Fund Balance Sheet at December 31

Dollars in Thousands 

2004 2003

Assets

Cash and cash equivalents $ 3,501,387 $ 3,278,532

Receivables from thrift resolutions and other assets, net (Note 3) 82,275 198,432

Total Assets 3,583,662 3,476,964

Liabilities 

Accounts payable and other liabilities 5,606 19,381

Contingent liabilities for litigation losses and other (Note 4) 410 1,169

Total Liabilities 6,016 20,550

Resolution Equity (Note 6)

Contributed capital 126,382,877 126,377,851

Accumulated deficit (122,805,158) (122,962,936)

Unrealized (loss)/gain on available-for-sale securities, net (73) 41,499

Accumulated deficit, net (122,805,231) (122,921,437)

Total Resolution Equity 3,577,646 3,456,414

Total Liabilities and Resolution Equity $ 3,583,662 $ 3,476,964

The accompanying notes are an integral part of these financial statements.
82

Federal Deposit Insurance Corporation

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

Dollars in Thousands 

2004 2003

Revenue

Interest on U.S. Treasury obligations $ 40,076 $ 32,902

Realized gain on investment in securitization-related assets acquired 

from receiverships (Note 3) 66,708 756

Other revenue 21,114 16,849

Total Revenue 127,898 50,507

Expenses and Losses

Operating expenses 22,932 27,828

Provision for losses (Note 5) (6,911) (33,306)

Expenses for goodwill settlements and litigation (Note 4) 31,632 15,324

Recovery of tax benefits (82,937) (19,609)

Other expenses 5,404 7,933

Total Expenses and Losses (29,880) (1,830)

Net Income 157,778 52,337

Unrealized loss on available-for-sale securities, net (Note 3) (41,572) (1,258)

Comprehensive Income 116,206 51,079

Accumulated Deficit - Beginning (122,921,437) (122,972,516)

Accumulated Deficit - Ending $ (122,805,231) $ (122,921,437)

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

83

FSLIC Resolution Fund

Federal Deposit Insurance Corporation

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

Dollars in Thousands 

2004 2003

Operating Activities

Net Income: $ 157,778 $ 52,337

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

Provision for losses (6,911) (33,306)

Change in Assets and Liabilities:

(Increase)/Decrease in receivables from thrift resolutions and other assets (35,238) 80,339

(Decrease)/Increase in accounts payable and other liabilities (13,775) 4,973

Net Cash Provided by Operating Activities 101,854 104,343

Investing Activities

Investment in securitization-related assets acquired from receiverships 115,975 5,829

Net Cash Provided by Investing Activities 115,975 5,829

Financing Activities

Provided by:

U.S.Treasury payments for goodwill settlements 5,026 30

Used by:

Payments to Resolution Funding Corporation (Note 6) 0 (450,000)

Net Cash Provided/(Used) by Financing Activities 5,026 (449,970)

Net Increase/(Decrease) in Cash and Cash Equivalents 222,855 (339,798)

Cash and Cash Equivalents - Beginning 3,278,532 3,618,330

Cash and Cash Equivalents - Ending $ 3,501,387 $ 3,278,532

The accompanying notes are an integral part of these financial statements.
11. 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 funds established in the FDI Act,

as amended. In addition, FDIC is charged with responsibility for the sale of

remaining assets and satisfaction of liabilities associated with the former 

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

Trust Corporation (RTC). 

The U.S. Congress created the FSLIC through the enactment of the National

Housing Act of 1934. The Financial Institutions Reform, Recovery, and

Enforcement Act of 1989 (FIRREA) abolished the insolvent FSLIC, created 

the FSLIC Resolution Fund (FRF), and transferred the assets and liabilities 

of the FSLIC to the FRF-except those assets and liabilities transferred to the

RTC-effective on August 9, 1989. 

The FIRREA was enacted to reform, recapitalize, and consolidate the federal

deposit insurance system. In addition to the FRF, FIRREA created the Bank

Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF). 

It also designated the FDIC as the administrator of these funds. All three 

funds are maintained separately to carry out their respective mandates.

The FIRREA created the RTC to manage and resolve all thrifts previously 

insured by the FSLIC for which a conservator or receiver was appointed during

the period January 1, 1989, through August 8, 1992. Resolution responsibility

was subsequently extended and ultimately transferred from the RTC to the SAIF

on July 1, 1995. 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.

FSLIC

Resolution 

Fund

Notes to the 

Financial 

Statements 

December 31, 2004

and 2003
2

FRF

FSLIC Resolution Fund

85

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 FRFFSLIC will be paid to the U.S. Treasury. Any remaining funds of the FRF-RTC 

will be distributed to the REFCORP to pay the interest on the REFCORP bonds.

In addition, the FRF-FSLIC has available until expended $602.2 million in appropriations to facilitate, if required, efforts to wind up the resolution activity of the

FRF-FSLIC. 

The FDIC has conducted an extensive review and cataloging of FRF’s remaining

assets and liabilities and is continuing to explore approaches for concluding FRF’s

activities. An executive-level Steering Committee was established in 2003 to

facilitate the FRF dissolution. Some of the issues and items that remain open 

in FRF are: 1) criminal restitution orders (generally have from 5 to 10 years

remaining); 2) litigation claims and judgments obtained against officers and 

directors and other professionals responsible for causing thrift losses (judgments

generally vary from 5 to 10 years); 3) numerous assistance agreements entered

into by the former FSLIC (FRF could continue to receive tax-sharing benefits

through year 2020); 4) Goodwill and Guarini litigation (no final date for resolution

has been established; see Note 4); and 5) environmentally impaired owned 

real estate assets. The FDIC is considering whether enabling legislation or 

other measures may be needed to accelerate liquidation of the remaining FRF

assets and liabilities. The FRF could realize substantial recoveries from the 

aforementioned tax-sharing benefits ranging from $170 million to $672 million;

however, any associated recoveries are not 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 conformity with U.S. generally

accepted accounting principles (GAAP). These statements do not include reporting

for assets and liabilities of closed thrift institutions for which the FDIC acts as

receiver. Periodic and final accountability reports of the FDIC’s activities as receiver

are furnished to courts, supervisory authorities, and others as required.
86

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.

Fair Value of Financial Instruments 

Cash equivalents, which consist of Special U.S. Treasury Certificates, are shortterm, highly liquid investments with original maturities of three months or less

and are shown at fair value. The carrying amount of short-term receivables and

accounts payable and other liabilities approximates their fair market value, due 

to their short maturities.

The investment in securitization-related assets acquired from receiverships 

consists of credit enhancement reserves. The credit enhancement reserves,

which resulted from swap transactions, are valued by performing projected

cash flow analyses using market-based assumptions (see Note 3).

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 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 market

value.

Cost Allocations Among Funds

Operating expenses not directly charged to the FRF, the BIF, and the SAIF 

are allocated to all funds using workload-based allocation percentages. These

percentages are developed during the annual corporate planning process and

through supplemental functional analyses.

Disclosure about Recent Accounting Pronouncements

Recent accounting pronouncements have been adopted or deemed to be not

applicable to the financial statements as presented.

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

FRF

FSLIC Resolution Fund

87

Reclassifications

Reclassifications have been made in the 2003 financial statements to conform 

to the presentation used in 2004.

In 2004, the FRF changed the format of its Statement of Cash Flows from 

the direct method to the indirect method for purposes of reporting cash flows

from operating activities. Accordingly, the Statement of Cash Flows for 2003

contains certain reclassifications to conform to the Corporation's current financial

statement format. For 2003 and 2004, the reconciliation of net income to net

cash provided by operating activities is included in the Statement of Cash

Flows. Consequently, information pertaining to gross amounts of receipts and

payments, not required for presentation of the indirect method, is available 

within other footnotes to these financial statements.

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 FSLIC and SAIF-insured institutions are 

a significant source of repayment of the FRF’s receivables from thrift resolutions.

As of December 31, 2004, 36 of the 850 FRF receiverships remain active primarily

due to unresolved litigation, including Goodwill matters. 

As of December 31, 2004 and 2003, FRF receiverships held assets with 

a book value of $175 million and $215 million, respectively (including cash, 

investments, and miscellaneous receivables of $142 million and $114 million 

at December 31, 2004 and 2003, respectively). The estimated cash recoveries

from the management and disposition of these assets that are used to derive

the allowance for losses are based on a sampling of receivership assets. The

sampled assets are generally valued by estimating future cash recoveries, net 

of applicable liquidation cost estimates, and then discounting these net cash

recoveries using current market-based risk factors based on a given asset’s type

and quality. Resultant recovery estimates are extrapolated to the non-sampled

assets in order to derive the allowance for loss on the receivable. These estimated

recoveries are regularly evaluated, but remain subject to uncertainties because

of potential changes in economic and market conditions. Such uncertainties could

cause the FRF’s actual recoveries to vary from the level currently estimated. 
88

Investment in Securitization-Related Assets Acquired from Receiverships

This investment is classified as available-for-sale with unrealized gains and losses

included in Resolution Equity. Realized gains and losses are recorded based upon

the difference between the proceeds at termination of the deal and the book value

of the investment and are included as components of Net Income. As expected, 

the last securitization deal terminated in March 2004. At December 31, 2004,

this investment includes credit enhancement reserves valued at $15.6 million.

The credit enhancement reserves resulted from swap transactions where the

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

mortgage loans. The former RTC supplied credit enhancement reserves for the

mortgage loans in the form of cash collateral to cover future credit losses over

the remaining life of the loans. These reserves may cover future credit losses

through 2020.

The FRF received $97.8 million in proceeds from terminations in 2004.

Gross receivables from thrift resolutions and the investment in securitizationrelated assets subject the FRF to credit risk. An allowance for loss of $19.9 billion,

or 99.7% of the gross receivable, was recorded as of December 31, 2004. Of

the remaining 0.3% of the gross receivable, approximately three-fourths of the

receivable is expected to be repaid from receivership cash and investments. 

Receivables From Thrift Resolutions and Other Assets, Net at December 31

Dollars in Thousands 

2004 2003

Receivables from closed thrifts $ 19,952,501 $ 22,940,793

Allowance for losses (19,894,023) (22,846,309)

Receivables from Thrift Resolutions, Net 58,478 94,484

Investment in securitization-related assets acquired from receiverships $ 15,643 $ 90,272

Other assets 8,154 13,676

Total $ 82,275 $ 198,432
4

89

4. Contingent Liabilities for:

Litigation Losses

The FRF records an estimated loss for unresolved legal cases to the extent

those losses are considered probable and reasonably estimable. In addition to 

the amount recorded as probable, the FDIC has determined that losses from

unresolved legal cases totaling $32.7 million are reasonably possible.

Additional Contingency 

Goodwill Litigation

In United States v. Winstar Corp., 518 U.S. 839 (1996), the Supreme Court held

that when it became impossible following the enactment of FIRREA in 1989 

for the federal government to perform certain agreements to count goodwill

toward regulatory capital, the plaintiffs were entitled to recover damages from

the United States. Approximately 49 cases are pending against the United States

based on alleged breaches of these agreements.

On July 22, 1998, the Department of Justice's (DOJ’s) Office of Legal Counsel

(OLC) concluded that the FRF is legally available to satisfy all judgments and 

settlements in the Goodwill Litigation involving supervisory action or assistance

agreements. OLC determined that nonperformance of these agreements was 

a contingent liability that was transferred to the FRF on August 9, 1989, upon

the dissolution of the FSLIC. Under the analysis set forth in the OLC opinion, 

as liabilities transferred on August 9,1989, these contingent liabilities for future

nonperformance of prior agreements with respect to supervisory goodwill were

transferred to the FRF-FSLIC, which is that portion of the FRF encompassing 

the obligations of the former FSLIC. The FRF-RTC, which encompasses the 

obligations of the former RTC and was created upon the termination of the RTC

on December 31, 1995, is not available to pay any settlements or judgments arising

out of the Goodwill Litigation. 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 lawsuits comprising the Goodwill Litigation are against the United States

and as such are defended by the DOJ. On November 17, 2004, the DOJ again

informed the FDIC that it is “unable at this time to provide a reasonable estimate

of the likely aggregate contingent liability resulting from the Winstar-related cases.”

This uncertainty arises, in part, from the existence of significant unresolved issues

pending at the appellate or trial court level, as well as the unique circumstances

of each case. 

The FDIC believes that it is probable that additional amounts, possibly substantial,

may be paid from the FRF-FSLIC as a result of judgments and settlements 

in the Goodwill Litigation. Based on the response from the DOJ, the FDIC is

unable to estimate a range of loss to the FRF-FSLIC from the Goodwill Litigation.

However, the FRF can draw from an appropriation provided by Section 110 of the

Department of Justice Appropriations Act, 2000 (Public Law 106-113, Appendix A,

Title I, 113 Stat. 1501A-3, 1501A-20) such sums as may be necessary for the

FSLIC Resolution Fund

FRF
90

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 liabilities for the Goodwill

Litigation should have no impact on the financial condition of the FRF-FSLIC. 

In addition, the FRF-FSLIC pays the goodwill litigation expenses incurred by 

DOJ based on a Memorandum of Understanding (MOU) dated October 2, 1998,

between the FDIC and DOJ. Under the terms of the MOU, the FRF-FSLIC 

paid $30.1 million and $33.3 million to DOJ for fiscal years 2005 and 2004, 

respectively. DOJ returns any unused fiscal year funding to the FRF unless 

special circumstances warrant these funds be carried over and applied against

current fiscal year charges. In March 2004, DOJ returned $8.2 million of unused

fiscal year funds. At September 30, 2004, DOJ had $12.7 million in unused

funds that were applied against FY 2005 charges of $42.8 million.

Guarini Litigation

Paralleling the goodwill cases are similar cases alleging that the government

breached agreements regarding tax benefits associated with certain FSLICassisted acquisitions. These agreements allegedly contained the promise of tax

deductions for losses incurred on the sale of certain thrift assets purchased by

plaintiffs, from the FSLIC, even though the FSLIC provided the plaintiffs with 

tax-exempt reimbursement. A provision in the Omnibus Budget Reconciliation

Act of 1993 (popularly referred to as the “Guarini legislation”) eliminated the tax

deductions for these losses.

Eight “Guarini” cases were filed seeking damages. Two “Guarini” cases have 

concluded. In one, no damages were awarded and the second was settled 

for $20,000. The U.S. Court of Federal Claims has entered judgments for

the plaintiffs in five of the remaining cases aggregating approximately 

$180 million. One judgment for $28.1 million has been affirmed by a panel 

of the U.S.Court of Appeals for the Federal Circuit, but is not yet final. Three

cases are on appeal, and one will likely be appealed. One case is still pending 

in the U.S.Court of Federal Claims and seeks damages in the approximate 

amount of $247 million.

The FDIC believes that it is possible that substantial amounts may be paid 

from the FRF-FSLIC as a result of the judgments and settlements from the

“Guarini litigation.” However, because the litigation of damages computation 

is still ongoing, the amount of the damages is not estimable at this time.

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

most likely been paid off or refinanced due to the current interest rate climate 

or the period for filing claims has expired. However, there is no reporting 

mechanism to determine the aggregate amount of remaining loans. Therefore,

the FDIC is unable to provide an estimate of maximum exposure to the FRF.

Based on the above and our history of claims processed, the FDIC believes that

any future representation and warranty liability to the FRF would be minimal. 
6

5

FRF

FSLIC Resolution Fund

5. Provision for Losses

The provision for losses was a negative $7 million and a negative $33 million 

for 2004 and 2003, respectively. In 2004 and 2003, the negative provision was

primarily due to lower estimated losses for assets in liquidation. 

6. 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.

91

Resolution Equity at December 31, 2004

Dollars in Thousands 

FRF

FRF-FSLIC FRF-RTC Consolidated

Contributed capital - beginning $ 44,178,514 $ 82,199,337 $ 126,377,851

Add: U.S. Treasury payments for goodwill settlements 5,026 0 5,026

Contributed capital - ending 44,183,540 82,199,337 126,382,877

Accumulated deficit (41,148,332) (81,656,826) (122,805,158)

Add: Unrealized loss on available-for-sale securities 0 (73) (73)

Accumulated deficit, net (41,148,332) (81,656,899) (122,805,231)

Total $ 3,035,208 $ 542,438 $ 3,577,646
92

Contributed Capital

To date, the FRF-FSLIC and the former RTC received $43.5 billion and $60.1 billion

from the U.S.Treasury, respectively. These payments were used to fund losses

from thrift resolutions prior to July 1,1995. Additionally, the FRF-FSLIC issued

$670 million in capital certificates to the FICO 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, 2004, the

FRF-RTC has returned $4.556 billion to the U.S.Treasury and made payments

of $4.572 billion to the REFCORP. These actions serve to reduce contributed

capital.

Accumulated Deficit

The accumulated deficit represents the cumulative excess of expenses over 

revenue for activity related to the FRF-FSLIC and the FRF-RTC. Approximately

$29.8 billion and $87.9 billion were brought forward from the former FSLIC 

and the former RTC on August 9, 1989, and January 1, 1996, respectively. The

FRF-FSLIC accumulated deficit has increased by $11.4 billion, whereas the 

FRF-RTC accumulated deficit has decreased by $6.3 billion, since their dissolution

dates.
FRF

7

FSLIC Resolution Fund

93

7. Employee Benefits

Pension Benefits 

Eligible FDIC employees (permanent and term employees with appointments

exceeding one year) are covered by the federal government retirement plans,

either the Civil Service Retirement System (CSRS) or the Federal Employees

Retirement System (FERS). Although the FRF contributes a portion of pension

benefits for eligible employees, it does not account for the assets of either

retirement system. The FRF also does not have actuarial data for accumulated

plan benefits or the unfunded liability relative to eligible employees. These

amounts are reported on and accounted for by the U.S.Office of Personnel

Management. 

The FRF’s pro rata share of pension-related expenses was $2.8 million and 

$2.2 million, as of December 31,2004 and 2003, respectively. 

Postretirement Benefits Other Than Pensions

Beginning in 2003, the FRF no longer recorded a liability for the postretirement

benefits of life and dental insurance as a result of FDIC’s change in funding 

policy for these benefits and elimination of the separate entity. In implementing

this change, management decided not to allocate either the plan assets or the

revised net accumulated postretirement benefit obligation (a long-term liability)

to FRF due to the expected dissolution of the Fund in the short-term. However,

FRF does continue to pay its proportionate share of the yearly claim expenses

associated with these benefits. 
94

To the Board of Directors

The Federal Deposit Insurance Corporation

We have audited the balance sheets as of December 31, 2004, and 2003, 

for the three funds administered by the Federal Deposit Insurance Corporation

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

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

of the Bank Insurance Fund (BIF), the Savings Association Insurance Fund

(SAIF), and the FSLIC Resolution Fund (FRF), we found 

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

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

● FDIC had effective internal control over financial reporting and compliance 

with laws and regulations for each fund; and

● no reportable noncompliance with laws and regulations we tested. 

The following sections discuss our conclusions in more detail. They also present

information on the scope of our audits and our evaluation of FDIC management’s

comments on a draft of this report. 

The financial statements, including the accompanying notes, present fairly, 

in all material respects, in conformity with U.S. generally accepted accounting

principles, BIF’s financial position as of December 31, 2004, and 2003, and 

the results of its operations and its cash flows for the years then ended. 

The financial statements, including the accompanying notes, present fairly, 

in all material respects, in conformity with U.S. generally accepted accounting

principles, SAIF’s financial position as of December 31, 2004, and 2003, and 

the results of its operations and its cash flows for the years then ended.

Opinion on BIF’s 

Financial Statements

Opinion on SAIF’s 

Financial Statements
95

The financial statements, including the accompanying notes, present fairly, 

in all material respects, in conformity with U.S. generally accepted accounting

principles, FRF’s financial position as of December 31, 2004, and 2003, and 

the results of its operations and its cash flows for the years then ended. 

FDIC management maintained, in all material respects, effective internal control

over financial reporting (including safeguarding assets) and compliance as of

December 31, 2004, that provided reasonable but not absolute assurance that

misstatements, losses, or noncompliance material in relation to FDIC’s financial

statements of each fund would be prevented or detected on a timely basis. 

Our opinion is based on criteria established under 31 U.S.C. 3512 (c), (d) 

[Federal Managers’ Financial Integrity Act (FMFIA)]. 

In prior years, we reported on weaknesses we identified in FDIC’s information

system controls, which we described as a reportable condition.1 Specifically,

FDIC had not adequately restricted access to critical financial programs and

data, provided sufficient network security, or established a comprehensive 

program to monitor access activities. A primary reason for FDIC’s information

system control weaknesses was that the corporation had not established a 

comprehensive information security program to manage computer security.

During the past several years, FDIC has made progress in correcting information

system control weaknesses and in 2004, FDIC made substantial progress in 

correcting most of the weaknesses we identified in prior years, including taking

steps to fully establish a comprehensive information security program. These

improvements, combined with the progress we reported last year, enabled us 

to conclude that the remaining issues related to information system controls 

no longer constitute a reportable condition. FDIC’s implementation of new

financial systems2 in the coming year will significantly change its information

systems environment and the related information systems controls necessary 

for their effective operation. Consequently, continued management commitment

to an effective information security program will be essential to ensure that the

corporation’s financial and sensitive information will be adequately protected 

in this new environment. 

Opinion on FRF’s 

Financial Statements

Opinion on Internal

Control

1Reportable conditions involve matters coming to the auditor’s attention that, in the auditor’s judgment,

should be communicated because they represent significant deficiencies in the design or operation 

of internal control and could adversely affect FDIC’s ability to meet the control objectives described 

in this report. 

2 During 2005 FDIC anticipates implementing a new, integrated financial environment to support the 

financial management needs of the corporation. 
96

We did not identify any reportable conditions during our 2004 audits. However,

we noted other less significant matters involving FDIC’s internal controls, 

including information system controls. We will be reporting separately to FDIC

management on these matters. 

Our tests for compliance with selected provisions of laws and regulations 

disclosed no instances of noncompliance that would be reportable under 

U.S. generally accepted government auditing standards. However, the objective

of our audits was not to provide an opinion on overall compliance with laws 

and regulations. Accordingly, we do not express such an opinion. 

FDIC management is responsible for (1) preparing the annual financial statements

in conformity with U.S. generally accepted accounting principles; (2) establishing,

maintaining, and assessing internal control to provide reasonable assurance 

that the broad control objectives of FMFIA are met; and (3) complying with

applicable laws and regulations. 

We are responsible for obtaining reasonable assurance about whether (1) the

financial statements are presented fairly, in all material respects, in conformity

with U.S. generally accepted accounting principles; and (2) management maintained

effective internal control, the objectives of which are the following: 

● financial reporting––transactions are properly recorded, processed, and 

summarized to permit the preparation of financial statements in conformity 

with U.S. generally accepted accounting principles, and assets are safeguarded 

against loss from unauthorized acquisition, use, or disposition; and 

● compliance with laws and regulations––transactions are executed in accordance

with laws and regulations that could have a direct and material effect on the

financial statements. 

We are also responsible for testing compliance with selected provisions of 

laws and regulations that could have a direct and material effect on the financial

statements. 

Compliance with Laws 

and Regulations

Objectives, Scope, and 

Methodology
97

In order to fulfill these responsibilities, we 

● examined, on a test basis, evidence supporting the amounts and disclosures 

in the financial statements; 

● assessed the accounting principles used and significant estimates made

by management;

● evaluated the overall presentation of the financial statements; 

● obtained an understanding of internal control related to financial reporting 

(including safeguarding assets) and compliance with laws and regulations;

● tested relevant internal controls over financial reporting and compliance, 

and evaluated the design and operating effectiveness of internal control;

● considered FDIC’s process for evaluating and reporting on internal control 

based on criteria established by FMFIA; and 

● tested compliance with laws and regulations, including selected provisions 

of the Federal Deposit Insurance Act, as amended, and the Chief Financial 

Officers Act of 1990. 

We did not evaluate all internal controls relevant to operating objectives 

as broadly defined by FMFIA, such as those controls relevant to preparing 

statistical reports and ensuring efficient operations. We limited our internal 

control testing to controls over financial reporting and compliance. Because of

inherent limitations in internal control, misstatements due to error or fraud, losses,

or noncompliance may nevertheless occur and not be detected. We also caution

that projecting our evaluation to future periods is subject to the risk that controls

may become inadequate because of changes in conditions or that the degree 

of compliance with controls may deteriorate.

We did not test compliance with all laws and regulations applicable to FDIC. 

We limited our tests of compliance to those laws and regulations that could 

have a direct and material effect on the financial statements for the year ended

December 31, 2004. We caution that noncompliance may occur and not be

detected by these tests and that such testing may not be sufficient for other 

purposes. 

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

auditing standards. 
In commenting on a draft of this report, FDIC’s Chief Financial Officer (CFO) 

was pleased to receive unqualified opinions on BIF’s, SAIF’s, and FRF’s 2004

and 2003 financial statements and to note that there were no material weaknesses

identified during the 2004 audits. FDIC’s CFO also stated that FDIC management

is committed to ensuring the continued success of an effective and strong 

information security program. The CFO said FDIC will remain focused on

accomplishing the work needed to face the new security challenges in the coming

year. The complete text of FDIC’s comments is reprinted in appendix I. 

David M. Walker

Comptroller General 

of the United States

January 31, 2005

98

FDIC Comments and 

Our Evaluation
Federal Deposit Insurance Corporation

550 17th St. NW Washington DC, 20429 Deputy to the Chairman & Chief Financial Officer

February 7, 2005

Mr. David M. Walker 

Comptroller General of the United States

U. S. Government Accountability Office

441 G Street, NW

Washington, DC 20548

Re: FDIC Management Response on the 

GAO 2004 Financial Statements Audit Report

Dear Mr. Walker:

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

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

Funds’ 2004 and 2003 Financial Statements, GAO-05-281. The report presents GAO’s 

opinions on the calendar year 2004 financial statements of the Bank Insurance Fund (BIF),

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

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

on the effectiveness of FDIC’s internal controls as of December 31, 2004, and GAO’s 

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

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

statements and to note that there were no material weaknesses identified during the 2004

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

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

FDIC had effective internal control over financial reporting and compliance with laws and

regulations; and there were no instances of noncompliance with laws and regulations that

were tested.

Also, we are pleased that GAO recognized the significant improvements that have 

been made during the past year and acknowledged our progress in fully implementing 

a comprehensive information security (IS) program. As always, management is committed 

to ensuring the continued success of an effective and strong IS program. We will remain

focused on accomplishing the work needed to face the new security challenges in the 

coming year. 

If you have any questions or concerns, please let me know.

Sincerely,

Steven O. App

Deputy to the Chairman and Chief Financial Officer

99

Appendix I
Overview of the Industry 

The 9,025 commercial banks and

savings institutions insured by the

FDIC reported total earnings of 

$91.8 billion for the first three quarters

of 2004, an increase of $2.0 billion

(2.3 percent) over the same period of

2003. The industry set new earnings

records in two of the first three quarters of the year, as a strengthening

economy and positive interest rate

conditions boosted loan demand and

helped reduce the level of troubled

loans. Net interest income, (the 

difference between the interest that

institutions earn on their loans and

other investments and the interest

they pay on deposits and other 

interest-bearing liabilities), registered

strong growth, and lower provisions

for loan losses also contributed 

to the improvement in earnings.

Insured commercial banks reported

$78.1 billion in net income for the first

three quarters of 2004, $2.0 billion

(2.6 percent) more than they reported

for the first three quarters of 2003.

The improvement would have been

greater, except that a few large

mergers caused more than $3 billion

in income to be excluded from yearto-date reported earnings for 2004.

Almost two out of every three of 

the nation’s 7,660 commercial banks

(62.3 percent) reported higher earnings

than a year earlier. Loan-loss provisions

were $6.7 billion (25.2 percent) lower,

while net interest income increased

by $5.6 billion (3.2 percent). These

were the two largest factors contributing to the improved earnings.

In contrast, noninterest income 

was $2.6 billion (1.9 percent) lower

than a year earlier, and gains on sales

of securities and other assets were

$1.8 billion (33.9 percent) smaller.

The average return on assets (ROA)

for the first three quarters of 2004

was 1.31 percent, compared to 

1.39 percent for the same period 

of 2003. 

An overall strengthening in loan

demand was evident in 2004. Through

the first three quarters of the year,

total loans and leases grew by

$386.2 billion (8.7 percent), while

during the first three quarters of

2003, loans increased by $194.8 

billion (4.7 percent). Accelerating

growth in home equity and other

consumer loans and a return 

to growth in loans to commercial 

and industrial (C&I) borrowers outweighed the effect of a slowdown 

in residential mortgage lending. Home

equity loans increased by $90.6 billion

(31.9 percent) in the first nine months

of 2004, compared to an increase 

of $46.1 billion (21.4 percent) 

in the first nine months of 2003.

Commercial and Industrial (C&I) loans

increased by $19.5 billion in the first

three quarters of 2004; in the first

three quarters of 2003, C&I loans

declined by $32.8 billion (3.6 percent).

Reduced mortgage refinancing activity

in 2004 was reflected in somewhat

slower growth in mortgage assets.

Banks’ holdings of residential 

mortgage-related assets, including

home mortgage loans and mortgagebacked securities, increased by

$126.3 billion (7.1 percent) during

the first three quarters of 2004, 

compared to an increase of $137.3

billion (8.3 percent) during the same

period in 2003. 

The strong growth in total loans 

was responsible for the increase in

banks’ net interest income, since the

average net interest margin for the

first three quarters of 2004 was 

3.59 percent, well below the 3.83

percent average in the first three

quarters of 2003. Asset-quality 

indicators, which began improving 

in 2003 following three years of

deterioration, continued to improve

in 2004. During the first nine months

of the year, the amount of commercial

banks’ loans that were 90 days or

more past due or in nonaccrual 

status declined by $9.0 billion 

(17.0 percent). The amount of loans

that banks charged-off in the first

three quarters of 2004 was $6.9 billion

(24.6 percent) less than their chargeoffs in the first three quarters of

2003.

100
101

Insured savings institutions reported

slightly higher net income during 

the first three quarters compared to

a year earlier, thanks to strong loan

growth, but reduced gains on sales

of securities and other assets limited the improvement. Net income

increased by only $79 million 

(0.6 percent), as a $2.2 billion 

(7.0 percent) improvement in net

interest income and a $3.2 billion

(28.5 percent) increase in noninterest

income were offset by a $3.5 billion

(14.0 percent) rise in noninterest

expenses and a $2.4 billion (43.8 percent) decline in gains on securities

sales. The average ROA for the

1,365 insured savings institutions

was 1.19 percent, down from 1.29

percent in the first three quarters of

2003. Fewer than half of all savings

institutions (46.6 percent) had higher

earnings than a year earlier. The

average net interest margin for the

first three quarters of 2004 was 

3.20 percent, down from 3.29 percent

for the first three quarters of 2003.

Asset quality indicators registered

modest improvement. Net charge-offs

were $85 million (3.9 percent) lower

than a year earlier, and loan-loss 

provisions were $179 million 

(8.4 percent) lower. 
The FDIC’s control standards 

incorporate the GAO’s Standards 

for Internal Controls in the Federal

Government. Good internal control

systems are essential for ensuring

the proper conduct of FDIC 

business and the accomplishment 

of management objectives by serving

as checks and balances against

undesirable actions or outcomes.

As part of the Corporation’s continued

commitment to establish and 

maintain effective and efficient 

internal controls, FDIC management

routinely conducts reviews of internal

control systems. The results of these

reviews, as well as consideration 

of audits, evaluations and reviews

conducted by the U.S. Government

Accountability Office (GAO), the

Office of Inspector General (OIG)

and other outside entities, are used

as a basis for the FDIC’s reporting

on the condition of the Corporation’s

internal control activities. The FDIC’s

management concludes that the

system of internal controls, taken 

as a whole, complies with internal

control standards prescribed by 

the GAO and provides reasonable

assurance that the related objectives

are being met. 

The Corporation’s evaluation

processes, the OIG audits and 

evaluations, and the GAO financial

statements audits have identified

certain areas where existing internal

controls should be improved. These

areas are listed below.

1

Material Weaknesses

To determine the existence of 

material weaknesses, the FDIC has

assessed the results of management

evaluations and external audits of

the Corporation’s risk management

and internal control systems 

conducted in 2004, as well as 

management actions taken to

address issues identified in these

audits and evaluations. Based on this

assessment and application of other

criteria, the FDIC concludes that no

material weaknesses existed within

the Corporation’s operations for 2004.

This is the seventh consecutive year

that the FDIC has not had a material

weakness.

V. Management

Controls
103

High Vulnerability Issues

FDIC management has designated

high vulnerability issues as areas

requiring heightened attention of

management. Although GAO did 

not identify a reportable condition 

for 2004, the FDIC identified

Information Systems Security 

as an area of high vulnerability.

The FDIC has made significant

progress in the last year to improve

information systems security, but

work remains to tighten and improve

these controls. This assessment 

was confirmed by our independent

auditors who reported that “FDIC

made significant progress in 

improving its information security

controls and practices; (however,

these) controls provided limited

assurance of adequate security 

over (FDIC) resources.” The FDIC

must ensure that processes and 

systems keep pace with new 

technologies and the growth in 

the types and range of attacks on

systems throughout the industry.

Information system security is an

inherently high-risk area due to its

complexity and the existence of 

constant technological change.

Controls need to improve to keep

pace with change. Consequently, 

the FDIC is keeping Information

Systems Security in the forefront 

and thus classified it as high 

vulnerability for 2004, despite 

the many accomplishments made 

in this area. 

Matters for 

Continued Monitoring

FDIC management has identified

four matters that warrant continued

monitoring. The matters listed below

are areas that are kept in the forefront

of management’s attention and

proactively assessed throughout 

the year. 

1. Bank Secrecy Act

The FDIC is engaged in several 

initiatives to strengthen its 

anti-money laundering (AML) 

supervisory program. As stated 

in the Management Discussion 

and Analysis section of this report,

the Corporation has participated 

in interagency working groups, 

issued guidance and incorporated 

changes in examination procedures

to assist in efforts to identify 

money laundering and terrorist 

financing risks. The FDIC will 

continue to engage in progressive 

initiatives, working closely with 

other Federal and State Regulators,

FinCEN, Federal law enforcement, 

the Department of Homeland 

Security, and the State Department.

A few of the initiatives include 

issuing comprehensive BSA/AML

examination procedures; conducting 

nationwide industry outreach 

sessions focused on BSA, AML, 

and counter-financing of terrorism 

issues; increasing the number of 

BSA /AML subject matter experts; 

and providing advanced training 

to these subject matter experts. 
2. Project Management 

and Contractor Oversight

The FDIC manages a variety 

of projects, including systems 

development and renovation 

projects. Because of the size 

(multi-million dollar) and complexity

of some of these projects, 

it is imperative that the FDIC 

emphasize strong internal 

controls over project management

and contractor oversight. Large, 

agency-wide, and complex 

projects pose a greater risk to 

the Corporation if not efficiently 

and effectively managed. As 

stated in the Message from the 

CFO, (pages 6-7) the FDIC’s CIRC 

focuses on systematic review and

monitoring of large-scale projects 

and improvements. As the FDIC 

is transitioning to utilizing more 

performance-based contracts, 

the Corporation is keeping a 

heightened level of attention 

on project management and 

contractor oversight, which 

is a good business practice.

3. Workforce Management

Substantial progress has been 

made in realigning the FDIC’s 

workforce to reflect changes in 

the industry. The FDIC will be 

reducing staff in certain areas 

and increasing staff in other areas

during 2005 and 2006. In addition, 

it will be taking the initial steps 

to implement the new Corporate 

Employee Program, which will 

become the foundation for a 

smaller, more flexible permanent 

workforce in the future. The 

Corporation will continue to 

monitor on an ongoing basis 

changes in the workload, 

technology, and the structure 

of the financial services industry 

and will adjust its human capital 

strategy, as appropriate, to 

address these changes. 

4. Business Continuity Plan

The FDIC has developed an

Emergency Preparedness Program

(Program) which is comprised

of an Emergency Response Plan 

(which addresses employee safety

and security) and a Business 

Continuity Plan. This Corporatewide Program continues to be 

refined to ensure FDIC can 

respond to any disruption, 

whether natural or man-made.

104
105

Internal Controls and Risk

Management Program

Enterprise Risk Management

The FDIC is adopting an Enterprise

Risk Management (ERM) approach

to identifying and analyzing risks on

an integrated corporate-wide basis.

During 2004, the FDIC redesignated

the former Office of Internal Control

Management as the Office of

Enterprise Risk Management.This

change was intended to facilitate 

a shift to a more proactive and 

enterprise-wide approach to risk

management. The focus will be 

on directing resources to areas 

of greatest risk.

The FDIC has risk managers for 

certain Capital Investment Review

Committee (CIRC) projects. The 

role of these risk managers includes

monitoring the schedule and budget

of CIRC projects more frequently

and at a more detailed level than the

CIRC, interjecting risk-management

concepts where needed, attending

project Steering Committee meetings,

and adding value as decisions are

being made. Additionally, monthly

risk evaluations are conducted 

and the results are reported to the

CIRC and the Corporation’s senior

management.

The FDIC’s circular on FDIC Internal

Control Programs and Systems is

being updated to include the concepts

of ERM. The circular will provide 

corporate-wide guidance on risk

management and internal controls

from an enterprise-wide perspective.

The FDIC’s ERM process will continue

to provide reasonable assurance 

that the objectives of the Federal

Managers’ Financial Integrity Act 

of 1982 (FMFIA) are met.
VI. Appendixes

Appendix A –

Key Statistics

For the year ended December 31

2004 2003 2002

Bank Insurance Fund

Financial Results 

Revenue $ 1,676 $ 1,626 $ 1,796

Operating Expenses 822 805 821

Insurance and other expenses (263) (921) (70)

Net Income 1,117 1,742 1,045

Comprehensive Income 1,005 1,732 1,611

Insurance Fund Balance $ 34,787 $ 33,782 $ 32,050

Fund as a Percentage of Insured Deposits 1.32% 1.32% 1.27%

Selected Statistics

Total BIF-Member Institutions●7,875 7,995 8,125

Problem Institutions 86 102 116

Total Assets of Problem Institutions $ 24,446 $ 28,812 $ 32,176

Institution Failures 3 3 10

Total Assets of Current Year Failed Institutions $ 151 $ 1,097 $ 2,508

Number of Active Failed Institution Receiverships 31 31 37

Savings Association Insurance Fund

Financial Results 

Revenue $ 564 $ 547 $ 589

Operating Expenses 120 130 124

Insurance and other expenses (72) (83) (155)

Net Income 516 500 620

Comprehensive Income 480 493 812

Insurance Fund Balance $ 12,720 $ 12,240 $ 11,747

Fund as a Percentage of Insured Deposits 1.33% 1.37% 1.37%

Selected Statistics

Total SAIF-Member Institutions ■1,150 1,186 1,229

Problem Institutions 9 14 20

Total Assets of Problem Institutions $ 625 $ 1,105 $ 6,751

Institution Failures 1 0 1

Total Assets of Current Year Failed Institutions $ 15 $ 0 $ 50

Number of Active Failed Institution Receiverships 3 2 3

▼ As of September 30, 2004.

● Commercial banks and savings institutions. Does not include U.S. branches of foreign banks.

■ Savings institutions and commercial banks.

Selected Statistics

Dollars in millions

▼

▼

▼

▼

▼

▼

▼

▼
107

Number of Insured Banks Deposits of Insured Banks

1

Without With Without With

Disbursements Disbursements Disbursements Disbursements

Year Total by FDIC by FDIC Total by FDIC by FDIC Assets

Number and Deposits of BIF-Insured Banks Closed Because of Financial Difficulties, 1934 through 20041

Dollars in Thousands

Total 2,116 19 2,097 $ 217,856,719 $ 4,298,814 $ 213,557,905 $ 408,937,918

2004 3 – 3 132,880 – 132,880 150,519,500

2003 3 – 3 903,504 – 903,504 1,096,724

2002 10 – 10 2,124,501 – 2,124,501 2,507,565

2001 3 – 3 49,926 – 49,926 54,470

2000 6 – 6 311,950 – 311,950 378,088

1999 7 – 7 1,268,151 – 1,268,151 1,423,819

1998 3 – 3 335,076 – 335,076 370,400

1997 1 – 1 26,800 – 26,800 25,921

1996 5 – 5 168,228 – 168,228 182,502

1995 6 – 6 632,700 – 632,700 753,024

1994 13 1 12 1,236,488 – 1,236,488 1,392,140

1993 41 – 41 3,132,177 – 3,132,177 3,539,373

1992 120 10 110 41,150,898 4,257,667 36,893,231 44,197,009

1991 124 – 124 53,751,763 – 53,751,763 63,119,870

1990 168 – 168 14,473,300 – 14,473,300 15,660,800

1989 206 – 206 24,090,551 – 24,090,551 29,168,596

1988 200 – 200 24,931,302 – 24,931,302 35,697,789

1987 184 – 184 6,281,500 – 6,281,500 6,850,700

1986 138 – 138 6,471,100 – 6,471,100 6,991,600

1985 120 – 120 8,059,441 – 8,059,441 8,741,268

1984 79 – 79 2,883,162 – 2,883,162 3,276,411

1983 48 – 48 5,441,608 – 5,441,608 7,026,923

1982 42 – 42 9,908,379 – 9,908,379 11,632,415

1981 10 – 10 3,826,022 – 3,826,022 4,859,060

1980 10 – 10 216,300 – 216,300 236,164

1979 10 – 10 110,696 – 110,696 132,988

1978 7 – 7 854,154 – 854,154 994,035

1977 6 – 6 205,208 – 205,208 232,612

1976 16 – 16 864,859 – 864,859 1,039,293

1975 13 – 13 339,574 – 339,574 419, 950

1974 4 – 4 1,575,832 – 1,575,832 3,822,596

1973 6 – 6 971,296 – 971,296 1,309,675

1972 1 – 1 20,480 – 20,480 22,054

1971 6 – 6 132,058 – 132,058 196,520

1970 7 – 7 54,806 – 54,806 62,147

1969 9 – 9 40,134 – 40,134 43,572

1968 3 – 3 22,524 – 22,524 25,154

1967 4 – 4 10,878 – 10,878 11,993

1966 7 – 7 103,523 – 103,523 120,647

1965 5 – 5 43,861 – 43,861 58,750

1964 7 – 7 23,438 – 23,438 25,849

1963 2 – 2 23,444 – 23,444 26,179

1962 1 1 0 3,011 3,011 0 N/A

1961 5 – 5 8,936 – 8,936 9,820

1960 1 – 1 6,930 – 6,930 7,506

1959 3 – 3 2,593 – 2,593 2,858

1958 4 – 4 8,240 – 8,240 8,905

1957 2 1 1 11,247 10,084 1,163 1,253

1956 2 – 2 11,330 – 11,330 12,914

1955 5 – 5 11,953 – 11,953 11,985

1954 2 – 2 998 – 998 1,138

1953 4 2 2 44,711 26,449 18,262 18,811

1952 3 – 3 3,170 – 3,170 2,388

1951 2 – 2 3,408 – 3,408 3,050

1950 4 – 4 5,513 – 5,513 4,005

1949 5 1 4 6,665 1,190 5,475 4,886

1948 3 – 3 10,674 – 10,674 10,360

1947 5 – 5 7,040 – 7,040 6,798

1946 1 – 1 347 – 347 351

1945 1 – 1 5,695 – 5,695 6,392

1944 2 – 2 1,915 – 1,915 2,098

1943 5 – 5 12,525 – 12,525 14,058

1942 20 – 20 19,185 – 19,185 22,254

1941 15 – 15 29,717 – 29,717 34,804

1940 43 – 43 142,430 – 142,430 161,898

1939 60 – 60 157,772 – 157,772 181,514

1938 74 – 74 59,684 – 59,684 69,513

1937 77 2 75 33,677 328 33,349 40,370

1936 69 – 69 27,508 – 27,508 31,941

1935 26 1 25 13,405 85 13,320 17,242

1934 9 – 9 1,968 – 1,968 2,661

Does not include institutions that received FDIC assistance and were not closed. Also does not include institutions insured by the Savings Association Insurance Fund (SAIF), which was 

established by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.
108

Deposit Payoff Cases2

Number Estimated Number Estimated

of Additional Estimated of Additional Estimated

Year Banks Disbursements Recoveries Recoveries Losses Banks Disbursements Recoveries Recoveries Losses

Recoveries and Losses by the Bank Insurance Fund on Disbursements for the Protection of Depositors, 

1934 through 2004

Dollars in Thousands

continued on next page

Total 2,224 111,269,132 72,628,327 362,681 38,278,124 608 16,131,723 11,303,684 96,052 4,731,987

2004 3 132,781 121,446 1,965 9,370 0000 0

2003 3 883,797 680,186 127,272 76,339 0000 0

2002 10 2,019,523 1,345,196 127,395 546,932 5 1,573,393 1,076,675 96,052 400,666

2001 3 25,080 19,288 0 5,792 0000 0

2000 6 268,730 235,925 1,359 31,446 0000 0

1999 7 1,244,450 494,612 94,155 655,683 0000 0

1998 3 286,598 52,821 8,545 225,232 0000 0

1997 1 25,546 20,520 0 5,026 0000 0

1996 5 169,386 130,727 0 38,659 0000 0

1995 6 609,045 524,573 0 84,472 0000 0

1994 13 1,224,769 1,045,718 0 179,051 0000 0

1993 41 1,797,312 1,151,128 82 646,102 5 261,203 159,268 0 101,935

1992 122 14,172,917 10,504,048 839 3,668,030 25 1,890,869 1,398,731 0 492,138

1991 127 21,413,224 15,402,252 3,034 6,007,938 21 1,468,407 1,000,733 0 467,674

1990 169 10,817,419 8,040,426 0 2,776,993 20 2,183,400 1,647,044 0 536,356

1989 207 11,445,829 5,248,247 0 6,197,582 32 2,116,556 1,262,140 0 854,416

1988 280 12,163,006 5,244,866 0 6,918,140 36 1,252,160 822,612 0 429,548

1987 203 5,037,871 3,015,215 0 2,022,656 51 2,103,792 1,401,000 0 702,792

1986 145 4,790,969 3,015,252 0 1,775,717 40 1,155,981 739,659 0 416,322

1985 120 2,920,687 1,913,452 0 1,007,235 29 523,789 411,175 0 112,614

1984 80 7,696,215 6,056,061 0 1,640,154 16 791,838 699,483 0 92,355

1983 48 3,807,082 2,400,044 0 1,407,038 9 148,423 122,484 0 25,939

1982 42 2,275,150 1,106,579 0 1,168,571 7 277,240 206,247 0 70,993

1981 10 888,999 107,221 0 781,778 2 35,736 34,598 0 1,138

1980 11 152,355 121,675 0 30,680 3 13,732 11,427 0 2,305

1979 10 90,489 74,372 0 16,117 3 9,936 9,003 0 933

1978 7 548,568 512,927 0 35,641 1 817 613 0 204

1977 6 26,650 20,654 0 5,996 0000 0

1976 17 599,397 561,532 0 37,865 3 11,416 9,660 0 1,756

1975 13 332,046 292,431 0 39,615 3 25,918 25,849 0 69

1974 5 2,403,277 2,259,633 0 143,644 0000 0

1973 6 435,238 368,852 0 66,386 3 16,771 16,771 0 0

1972 2 16,189 14,501 0 1,688 1 16,189 14,501 0 1,688

1971 7 171,646 171,430 0 216 5 53,767 53,574 0 193

1970 7 51,566 51,294 0 272 4 29,265 28,993 0 272

1969 9 42,072 41,910 0 162 4 7,596 7,513 0 83

1968 3 6,476 6,464 0 12 0000 0

1967 4 8,097 7,087 0 1,010 4 8,097 7,087 0 1,010

1966 7 10,020 9,541 0 479 1 735 735 0 0

1965 5 11,479 10,816 0 663 3 10,908 10,391 0 517

1964 7 13,712 12,171 0 1,541 7 13,712 12,171 0 1,541

1963 2 19,172 18,886 0 286 2 19,172 18,886 0 286

1962 000000000 0

1961 5 6,201 4,700 0 1,501 5 6,201 4,700 0 1,501

1960 1 4,765 4,765 0 0 1 4,765 4,765 0 0

1959 3 1,835 1,738 0 97 3 1,835 1,738 0 97

1958 4 3,051 3,023 0 28 3 2,796 2,768 0 28

1957 1 1,031 1,031 0 0 1 1,031 1,031 0 0

1956 2 3,499 3,286 0 213 1 2,795 2,582 0 213

1955 5 7,315 7,085 0 230 4 4,438 4,208 0 230

1954 2 1,029 771 0 258 0000 0

1953 2 5,359 5,359 000000 0

1952 3 1,525 733 0 792 0000 0

1951 2 1,986 1,986 000000 0

1950 4 4,404 3,019 0 1,385 0000 0

1949 4 2,685 2,316 0 369 0000 0

1948 3 3,150 2,509 0 641 0000 0

1947 5 2,038 1,979 0 59 0000 0

1946 1 274 274 000000 0

1945 1 1,845 1,845 000000 0

1944 2 1,532 1,492 0 40 1 404 364 0 40

1943 5 7,230 7,107 0 123 4 5,500 5,377 0 123

1942 20 11,684 10,996 0 688 6 1,612 1,320 0 292

1941 15 25,061 24,470 0 591 8 12,278 12,065 0 213

1940 43 87,899 84,103 0 3,796 19 4,895 4,313 0 582

1939 60 81,828 74,676 0 7,152 32 26,196 20,399 0 5,797

1938 74 34,394 31,969 0 2,425 50 9,092 7,908 0 1,184

1937 75 20,204 16,532 0 3,672 50 12,365 9,718 0 2,647

1936 69 15,206 12,873 0 2,333 42 7,735 6,397 0 1,338

1935 25 9,108 6,423 0 2,685 24 6,026 4,274 0 1,752

1934 9 941 734 0 207 9 941 734 0 207

All Cases1
109

Assistance Transactions1 Deposit Assumption Cases

Number Estimated Number Estimated

of Additional Estimated of Additional Estimated

Year Banks Disbursements Recoveries Recoveries Losses Banks Disbursements Recoveries Recoveries Losses

Recoveries and Losses by the Bank Insurance Fund on Disbursements for the Protection of Depositors, 

1934 through 2004 (continued)

Dollars in Thousands

1

2

Total 1,475 83,507,053 55,124,768 266,629 28,115,656 141 11,630,356 6,199,875 0 5,430,481

2004 3 132,781 121,446 1,965 9,370 0000 0

2003 3 883,797 680,186 127,272 76,339 0000 0

2002 5 446,130 268,521 31,343 146,266 0000 0

2001 3 25,080 19,288 0 5,792 0000 0

2000 6 268,730 235,925 1,359 31,446 0000 0

1999 7 1,244,450 494,612 94,155 655,683 0000 0

1998 3 286,598 52,821 8,545 225,232 0000 0

1997 1 25,546 20,520 0 5,026 0000 0

1996 5 169,386 130,727 0 38,659 0000 0

1995 6 609,045 524,573 0 84,472 0000 0

1994 13 1,224,769 1,045,718 0 179,051 0000 0

1993 36 1,536,109 991,860 82 544,167 0000 0

1992 95 12,280,562 9,104,081 839 3,175,642 2 1,486 1,236 0 250

1991 103 19,938,700 14,398,426 3,034 5,537,240 3 6,117 3,093 0 3,024

1990 148 8,629,084 6,390,785 0 2,238,299 1 4,935 2,597 0 2,338

1989 174 9,326,725 3,985,855 0 5,340,870 1 2,548 252 0 2,296

1988 164 9,180,495 4,232,545 0 4,947,950 80 1,730,351 189,709 0 1,540,642

1987 133 2,773,202 1,613,502 0 1,159,700 19 160,877 713 0 160,164

1986 98 3,476,140 2,209,924 0 1,266,216 7 158,848 65,669 0 93,179

1985 87 1,631,166 1,095,601 0 535,565 4 765,732 406,676 0 359,056

1984 62 1,373,198 941,674 0 431,524 2 5,531,179 4,414,904 0 1,116,275

1983 35 2,893,969 1,850,553 0 1,043,416 4 764,690 427,007 0 337,683

1982 25 268,372 213,578 0 54,794 10 1,729,538 686,754 0 1,042,784

1981 5 79,208 71,358 0 7,850 3 774,055 1,265 0 772,790

1980 7 138,623 110,248 0 28,375 1000 0

1979 7 80,553 65,369 0 15,184 0000 0

1978 6 547,751 512,314 0 35,437 0000 0

1977 6 26,650 20,654 0 5,996 0000 0

1976 13 587,981 551,872 0 36,109 1000 0

1975 10 306,128 266,582 0 39,546 0000 0

1974 4 2,403,277 2,259,633 0 143,644 1000 0

1973 3 418,467 352,081 0 66,386 0000 0

1972 000001000 0

1971 1 117,879 117,856 0 23 1000 0

1970 3 22,301 22,301 000000 0

1969 5 34,476 34,397 0 79 0000 0

1968 3 6,476 6,464 0 12 0000 0

1967 000000000 0

1966 6 9,285 8,806 0 479 0000 0

1965 2 571 425 0 146 0000 0

1964 000000000 0

1963 000000000 0

1962 000000000 0

1961 000000000 0

1960 000000000 0

1959 000000000 0

1958 1 255 255 000000 0

1957 000000000 0

1956 1 704 704 000000 0

1955 1 2,877 2,877 000000 0

1954 2 1,029 771 0 258 0000 0

1953 2 5,359 5,359 000000 0

1952 3 1,525 733 0 792 0000 0

1951 2 1,986 1,986 000000 0

1950 4 4,404 3,019 0 1,385 0000 0

1949 4 2,685 2,316 0 369 0000 0

1948 3 3,150 2,509 0 641 0000 0

1947 5 2,038 1,979 0 59 0000 0

1946 1 274 274 000000 0

1945 1 1,845 1,845 000000 0

1944 1 1,128 1,128 000000 0

1943 1 1,730 1,730 000000 0

1942 14 10,072 9,676 0 396 0000 0

1941 7 12,783 12,405 0 378 0000 0

1940 24 83,004 79,790 0 3,214 0000 0

1939 28 55,632 54,277 0 1,355 0000 0

1938 24 25,302 24,061 0 1,241 0000 0

1937 25 7,839 6,814 0 1,025 0000 0

1936 27 7,471 6,476 0 995 0000 0

1935 1 3,082 2,149 0 933 0000 0

1934 000000000 0

Totals do not include dollar amounts for the five open bank assistance transactions between 1971 and 1980. Excludes eight transactions prior to 1962 that required no disbursements. 

Also, disbursements, recoveries, and estimated additional recoveries do not include working capital advances to and repayments by receiverships.

Includes insured deposit transfer cases.

Note: Beginning with the 1997 Annual Report the number of banks in the Assistance Transactions column for 1988 was changed from 21 to 80 and the number of banks in the All Cases 

column was changed from 221 to 280 to reflect that one assistance transaction encompassed 60 institutions. Also, certain 1982, 1983, 1989 and 1992 resolutions previously reported 

in either the Deposit Payoff or Deposit Assumption categories were reclassified.
110

Income Expenses and Losses

Investment Effective Provision Administrative Interest and

Assessment Assessment and Other Assessment for and Operating Other Insur. Net Income/

Year Total Income Credits Sources Rate1 Total Losses Expenses2 Expenses (Loss)

Income and Expenses, Bank Insurance Fund, from Beginning of Operations, 

September 11, 1933, through December 31, 2004

Dollars in Millions

continued on next page

Total $ 88,804.5 $ 53,520.1 $ 6,709.1 $ 41,993.5 $ 54,707.5 $ 35,923.1 $ 11,788.5 $ 7,001.9 $ 34,097.0

2004 1,675.4 95.3 0.0 1,580.1 0.0022% 558.6 (269.4) 822.4 5.6 1,116.8

2003 1,626.0 80.2 0.0 1,545.8 0.0020% (115.7) (928.5) 805.5 7.3 1,741.7

2002 1,795.9 84.0 0.0 1,711.9 0.0022% 750.6 (87.0) 821.1 16.5 1,045.3

2001 1,996.7 47.8 0.0 1,948.9 0.0014% 2,559.4 1,756.3 785.9 17.2 (562.7)

2000 1,905.9 45.1 0.0 1,860.8 0.0014% 645.2 (153.0) 772.9 25.3 1,260.7

1999 1,815.6 33.3 0.0 1,782.3 0.0011% 1,922.0 1,168.7 730.4 22.9 (106.4)

1998 2,000.3 21.7 0.0 1,978.6 0.0008% 691.5 (37.7) 697.6 31.6 1,308.8

1997 1,615.6 24.7 0.0 1,590.9 0.0008% 177.3 (503.7) 605.2 75.8 1,438.3

1996 1,655.3 72.7 0.0 1,582.6 0.0024% 254.6 (325.2) 505.3 74.5 1,400.7

1995 4,089.1 2,906.9 0.0 1,182.2 0.1240% 483.2 (33.2) 470.6 45.8 3,605.9

1994 6,467.0 5,590.6 0.0 876.4 0.2360% (2,259.1) (2,873.4) 423,2 191.1 8,726.1

1993 6,430.8 5,784.3 0.0 646.5 0.2440% (6,791.4) (7,677.4) 388.5 497.5 13,222.2

1992 6,301.5 5,587.8 0.0 713.7 0.2300% (625.8) (2,259.7) 570.8 1,063.1 6,927.3

1991 5,790.0 5,160.5 0.0 629.5 0.2125% 16,862.3 15,476.2 284.1 1,102.0 (11,072.3)

1990 3,838.3 2,855.3 0.0 983.0 0.1200% 13,003.3 12,133.1 219.6 650.6 (9,165.0)

1989 3,494.6 1,885.0 0.0 1609.6 0.0833% 4,346.2 3,811.3 213.9 321.0 (851.6)

1988 3,347.7 1,773.0 0.0 1,574.7 0.0833% 7,588.4 6,298.3 223.9 1,066.2 (4,240.7)

1987 3,319.4 1,696.0 0.0 1,623.4 0.0833% 3,270.9 2,996.9 204.9 69.1 48.5

1986 3,260.1 1,516.9 0.0 1,743.2 0.0833% 2,963.7 2,827.7 180.3 (44.3) 296.4

1985 3,385.4 1,433.4 0.0 1,952.0 0.0833% 1,957.9 1,569.0 179.2 209.7 1,427.5

1984 3,099.5 1,321.5 0.0 1,778.0 0.0800% 1,999.2 1,633.4 151.2 214.6 1,100.3

1983 2,628.1 1,214.9 164.0 1,577.2 0.0714% 969.9 675.1 135.7 159.1 1,658.2

1982 2,524.6 1,108.9 96.2 1,511.9 0.0769% 999.8 126.4 129.9 743.5 1,524.8

1981 2,074.7 1,039.0 117.1 1,152.8 0.0714% 848.1 320.4 127.2 400.5 1,226.6

1980 1,310.4 951.9 521.1 879.6 0.0370% 83.6 (38.1) 118.2 3.5 1,226.8

1979 1,090.4 881.0 524.6 734.0 0.0333% 93.7 (17.2) 106.8 4.1 996.7

1978 952.1 810.1 443.1 585.1 0.0385% 148.9 36.5 103.3 9.1 803.2

1977 837.8 731.3 411.9 518.4 0.0370% 113.6 20.8 89.3 3.5 724.2

1976 764.9 676.1 379.6 468.4 0.0370% 212.3 28.0 180.4 3.9 552.6

1975 689.3 641.3 362.4 410.4 0.0357% 97.5 27.6 67.7 2.2 591.8

1974 668.1 587.4 285.4 366.1 0.0435% 159.2 97.9 59.2 2.1 508.9

1973 561.0 529.4 283.4 315.0 0.0385% 108.2 52.5 54.4 1.3 452.8

1972 467.0 468.8 280.3 278.5 0.0333% 59.7 10.1 49.6 6.0 407.3

1971 415.3 417.2 241.4 239.5 0.0345% 60.3 13.4 46.9 0.0 355.0

1970 382.7 369.3 210.0 223.4 0.0357% 46.0 3.8 42.2 0.0 336.7

1969 335.8 364.2 220.2 191.8 0.0333% 34.5 1.0 33.5 0.0 301.3

1968 295.0 334.5 202.1 162.6 0.0333% 29.1 0.1 29.0 0.0 265.9

1967 263.0 303.1 182.4 142.3 0.0333% 27.3 2.9 24.4 0.0 235.7

1966 241.0 284.3 172.6 129.3 0.0323% 19.9 0.1 19.8 0.0 221.1

1965 214.6 260.5 158.3 112.4 0.0323% 22.9 5.2 17.7 0.0 191.7

1964 197.1 238.2 145.2 104.1 0.0323% 18.4 2.9 15.5 0.0 178.7

1963 181.9 220.6 136.4 97.7 0.0313% 15.1 0.7 14.4 0.0 166.8

1962 161.1 203.4 126.9 84.6 0.0313% 13.8 0.1 13.7 0.0 147.3

4

3

5
111

Income Expenses and Losses

Income and Expenses, Bank Insurance Fund, from Beginning of Operations, 

September 11, 1933, through December 31, 2004 (continued)

Dollars in Millions

The effective rates from 1950 through 1984 vary from the statutory rate of 0.0833 percent due to assessment credits provided in those years. The statutory rate increased to 0.12 

percent in 1990 and to a minimum of 0.15 percent in 1991. The effective rates in 1991 and 1992 vary because the FDIC exercised new authority to increase assessments above the 

statutory rate when needed. Beginning in 1993, the effective rate is based on a risk-related premium system under which institutions pay assessments in the range of 0.23 percent 

to 0.31 percent. In May 1995, the BIF reached the mandatory recapitalization level of 1.25%. As a result, the assessment rate was reduced to 4.4 cents per $100 of insured deposits 

and assessment premiums totaling $1.5 billion were refunded in September 1995.

These expenses, which are presented as operating expenses in the Statements of Income and Fund Balance, pertain to the FDIC in its corporate capacity only and do not include costs 

that are charged to the failed bank receiverships that are managed by the FDIC. The receivership expenses are presented as part of the "Receivables from Bank Resolutions, net" line 

on the Balance Sheets. The narrative and graph presented in the "Corporate Planning and Budget" section of this report (next page) show the aggregate (corporate and receivership) 

expenditures of the FDIC.

Includes $210 million for the cumulative effect of an accounting change for certain postretirement benefits.

Includes $105.6 million net loss on government securities.

This amount represents interest and other insurance expenses from 1933 to 1972.

Includes the aggregate amount of $80.6 million of interest paid on Capital Stock between 1933 and 1948.

1

2

3

4

5

6

1

6

Total $ 88,804.5 $ 53,520.1 $ 6,709.1 $ 41,993.5 $ 54,707.5 $ 35,923.1 $ 11,788.5 $ 7,001.9 $ 34,097.0

1961 147.3 188.9 115.5 73.9 0.0323% 14.8 1.6 13.2 0.0 132.5

1960 144.6 180.4 100.8 65.0 0.0370% 12.5 0.1 12.4 0.0 132.1

1959 136.5 178.2 99.6 57.9 0.0370% 12.1 0.2 11.9 0.0 124.4

1958 126.8 166.8 93.0 53.0 0.0370% 11.6 0.0 11.6 0.0 115.2

1957 117.3 159.3 90.2 48.2 0.0357% 9.7 0.1 9.6 0.0 107.6

1956 111.9 155.5 87.3 43.7 0.0370% 9.4 0.3 9.1 0.0 102.5

1955 105.8 151.5 85.4 39.7 0.0370% 9.0 0.3 8.7 0.0 96.8

1954 99.7 144.2 81.8 37.3 0.0357% 7.8 0.1 7.7 0.0 91.9

1953 94.2 138.7 78.5 34.0 0.0357% 7.3 0.1 7.2 0.0 86.9

1952 88.6 131.0 73.7 31.3 0.0370% 7.8 0.8 7.0 0.0 80.8

1951 83.5 124.3 70.0 29.2 0.0370% 6.6 0.0 6.6 0.0 76.9

1950 84.8 122.9 68.7 30.6 0.0370% 7.8 1.4 6.4 0.0 77.0

1949 151.1 122.7 0.0 28.4 0.0833% 6.4 0.3 6.1 0.0 144.7

1948 145.6 119.3 0.0 26.3 0.0833% 7.0 0.7 6.3 0.0 138.6

1947 157.5 114.4 0.0 43.1 0.0833% 9.9 0.1 9.8 0.0 147.6

1946 130.7 107.0 0.0 23.7 0.0833% 10.0 0.1 9.9 0.0 120.7

1945 121.0 93.7 0.0 27.3 0.0833% 9.4 0.1 9.3 0.0 111.6

1944 99.3 80.9 0.0 18.4 0.0833% 9.3 0.1 9.2 0.0 90.0

1943 86.6 70.0 0.0 16.6 0.0833% 9.8 0.2 9.6 0.0 76.8

1942 69.1 56.5 0.0 12.6 0.0833% 10.1 0.5 9.6 0.0 59.0

1941 62.0 51.4 0.0 10.6 0.0833% 10.1 0.6 9.5 0.0 51.9

1940 55.9 46.2 0.0 9.7 0.0833% 12.9 3.5 9.4 0.0 43.0

1939 51.2 40.7 0.0 10.5 0.0833% 16.4 7.2 9.2 0.0 34.8

1938 47.7 38.3 0.0 9.4 0.0833% 11.3 2.5 8.8 0.0 36.4

1937 48.2 38.8 0.0 9.4 0.0833% 12.2 3.7 8.5 0.0 36.0

1936 43.8 35.6 0.0 8.2 0.0833% 10.9 2.6 8.3 0.0 32.9

1935 20.8 11.5 0.0 9.3 0.0833% 11.3 2.8 8.5 0.0 9.5

1933/4 7.0 0.0 0.0 7.0 N/A 10.0 0.2 9.8 0.0 (3.0)

Investment Effective Provision Administrative Interest and

Assessment Assessment and Other Assessment for and Operating Other Insur. Net Income/

Year Total Income Credits Sources Rate Total Losses Expenses2 Expenses (Loss)
112

FDIC

RTC

2,000

1,500

1,000

500

0

1995 96 97 98 99 2000 01 02 03 04

FDIC Expenditures 1995-2004

The FDIC’s Strategic Plan and Annual Performance Plan provide

the basis for annual planning and budgeting for needed resources.

The 2004 aggregate budget (for corporate, receivership and

investment spending) was $1.21 billion, while actual expenditures

for the year were $1.11 billion, about $77 million more than 

2003 expenditures.

Over the past 10 years, the FDIC’s expenditures have varied 

in response to workload. During the past decade, expenditures

generally declined due to decreasing resolution and receivership

activity, although they temporarily increased in 1996 in conjunction

with the absorption of the Resolution Trust Corporation (RTC) and

its residual operations and workload. Total expenditures increased

in 2002 due to an increase in receivership-related expenses. 

The largest component of FDIC spending is the costs associated

with staffing. Staffing decreased by just over 4 percent in 2004,

from 5,311 employees at the beginning of the year to 5,078 at

the end of the year.

Corporate Planning and Budget

Dollars in Millions

Note:

Resolution Trust Corporation (RTC) expenditures became the responsibility of the FDIC on January 1, 1996.
113

Deposits in Insured Banks ($ millions) Insurance Fund as a Percentage of

1

2004 $ 100,000 $ 4,387,949 $ 2,612,740 59.5 $ 34,467.1 0.79 1.32

2003 100,000 4,139,287 2,554,624 61.7 33,782.2 0.82 1.32

2002 100,000 3,867,096 2,527,948 65.4 32,050.3 0.83 1.27

2001 100,000 3,584,610 2,408,878 67.2 30,438.8 0.85 1.26

2000 100,000 3,326,745 2,301,604 69.2 30,975.2 0.93 1.35

1999 100,000 3,038,385 2,157,536 71.0 29,414.2 0.97 1.36

1998 100,000 2,996,396 2,141,268 71.5 29,612.3 0.99 1.38

1997 100,000 2,785,990 2,055,874 73.8 28,292.5 1.02 1.38

1996 100,000 2,642,107 2,007,447 76.0 26,854.4 1.02 1.34

1995 100,000 2,575,966 1,952,543 75.8 25,453.7 0.99 1.30

1994 100,000 2,463,813 1,896,060 77.0 21,847.8 0.89 1.15

1993 100,000 2,493,636 1,906,885 76.5 13,121.6 0.53 0.69

1992 100,000 2,512,278 1.945,623 77.4 (100.6) (0.00) (0.01)

1991 100,000 2,520,074 1,957,722 77.7 (7,027.9) (0.28) (0.36)

1990 100,000 2,540,930 1,929,612 75.9 4,044.5 0.16 0.21

1989 100,000 2,465,922 1,873,837 76.0 13,209.5 0.54 0.70

1988 100,000 2,330,768 1,750,259 75.1 14,061.1 0.60 0.80

1987 100,000 2,201,549 1,658,802 75.3 18,301.8 0.83 1.10

1986 100,000 2,167,596 1,634,302 75.4 18,253.3 0.84 1.12

1985 100,000 1,974,512 1,503,393 76.1 17,956.9 0.91 1.19

1984 100,000 1,806,520 1,389,874 76.9 16,529.4 0.92 1.19

1983 100,000 1,690,576 1,268,332 75.0 15,429.1 0.91 1.22

1982 100,000 1,544,697 1,134,221 73.4 13,770.9 0.89 1.21

1981 100,000 1,409,322 988,898 70.2 12,246.1 0.87 1.24

1980 100,000 1,324,463 948,717 71.6 11,019.5 0.83 1.16

1979 40,000 1,226,943 808,555 65.9 9,792.7 0.80 1.21

1978 40,000 1,145,835 760,706 66.4 8,796.0 0.77 1.16

1977 40,000 1,050,435 692,533 65.9 7,992.8 0.76 1.15

1976 40,000 941,923 628,263 66.7 7,268.8 0.77 1.16

1975 40,000 875,985 569,101 65.0 6,716.0 0.77 1.18

1974 40,000 833,277 520,309 62.5 6,124.2 0.73 1.18

1973 20,000 766,509 465,600 60.7 5,615.3 0.73 1.21

1972 20,000 697,480 419,756 60.2 5,158.7 0.74 1.23

1971 20,000 610,685 374,568 61.3 4,739.9 0.78 1.27

1970 20,000 545,198 349,581 64.1 4,379.6 0.80 1.25

1969 20,000 495,858 313,085 63.1 4,051.1 0.82 1.29

1968 15,000 491,513 296,701 60.2 3,749.2 0.76 1.26

1967 15,000 448,709 261,149 58.2 3,485.5 0.78 1.33

1966 15,000 401,096 234,150 58.4 3,252.0 0.81 1.39

1965 10,000 377,400 209,690 55.6 3,036.3 0.80 1.45

1964 10,000 348,981 191,787 55.0 2,844.7 0.82 1.48

1963 10,000 313,304 177,381 56.6 2,667.9 0.85 1.50

1962 10,000 297,548 170,210 57.2 2,502.0 0.84 1.47

1961 10,000 281,304 160,309 57.0 2,353.8 0.84 1.47

1960 10,000 260,495 149,684 57.5 2,222.2 0.85 1.48

1959 10,000 247,589 142,131 57.4 2,089.8 0.84 1.47

1958 10,000 242,445 137,698 56.8 1,965.4 0.81 1.43

1957 10,000 225,507 127,055 56.3 1,850.5 0.82 1.46

1956 10,000 219,393 121,008 55.2 1,742.1 0.79 1.44

1955 10,000 212,226 116,380 54.8 1,639.6 0.77 1.41

1954 10,000 203,195 110,973 54.6 1,542.7 0.76 1.39

1953 10,000 193,466 105,610 54.6 1,450.7 0.75 1.37

1952 10,000 188,142 101,841 54.1 1,363.5 0.72 1.34

1951 10,000 178,540 96,713 54.2 1,282.2 0.72 1.33

1950 10,000 167,818 91,359 54.4 1,243.9 0.74 1.36

1949 5,000 156,786 76,589 48.8 1,203.9 0.77 1.57

1948 5,000 153,454 75,320 49.1 1,065.9 0.69 1.42

1947 5,000 154,096 76,254 49.5 1,006.1 0.65 1.32

1946 5,000 148,458 73,759 49.7 1,058.5 0.71 1.44

1945 5,000 157,174 67,021 42.4 929.2 0.59 1.39

1944 5,000 134,662 56,398 41.9 804.3 0.60 1.43

1943 5,000 111,650 48,440 43.4 703.1 0.63 1.45

1942 5,000 89,869 32,837 36.5 616.9 0.69 1.88

1941 5,000 71,209 28,249 39.7 553.5 0.78 1.96

1940 5,000 65,288 26,638 40.8 496.0 0.76 1.86

1939 5,000 57,485 24,650 42.9 452.7 0.79 1.84

1938 5,000 50,791 23,121 45.5 420.5 0.83 1.82

1937 5,000 48,228 22,557 46.8 383.1 0.79 1.70

1936 5,000 50,281 22,330 44.4 343.4 0.68 1.54

1935 5,000 45,125 20,158 44.7 306.0 0.68 1.52

1934 5,000 40,060 18,075 45.1 291.7 0.73 1.61

Total Estimated Percentage Deposit Total Estimated

Insurance Domestic Insured of Insured Insurance Domestic Insured

Year Coverage Deposits Deposits Deposits Fund Deposits Deposits

Estimated Insured Deposits and the Bank Insurance Fund, December 31,1934, through September 30, 2004 

2 3

4

2

3

4

1

For 2004, the numbers are as of September 30, and prior years reflect December 31 data.

Starting in 1990, deposits in insured banks exclude those deposits held by Bank Insurance Fund members that are insured by the Savings Association Insurance Fund and include those

deposits held by Savings Association Insurance Fund members that are insured by the Bank Insurance Fund.

Estimated insured deposits reflect deposit information as reported in the fourth quarter FDIC Quarterly Banking Profile. Before 1991, insured deposits were estimated using percentages 

determined from the June 30 Call Reports.

Initial coverage was $2,500 from January 1 to June 30, 1934.
114

Income Expenses and Losses

Income and Expenses, Savings Association Insurance Fund, by Year, 

from Beginning of Operations, August 9, 1989, through December 31, 2004

Dollars in Thousands

Funding

Investment Interest Administrative Transfer

and Effective Provision and Other and from

Assessment Other Assessment for Insurance Operating the FSLIC Net Income/

Year Total Income Sources Rate Total Losses Expenses Expenses Resolut. Fund (Loss)

Total $ 13,906,514 $ 8,651,474 $ 5,255,040 $ 1,563,784 $ 396,588 $ 30,109 $ 1,137,087 $ 139,498 $ 12,482,228

2004 564,775 8,891 555,884 0.001% 48,324 (72,162) 204 120,282 0 516,451

2003 547,260 14,594 532,666 0.001% 47,200 (82,489) 105 129,584 0 500,060

2002 588,821 23,783 565,038 0.003% (31,380) (156,494) 751 124,363 0 620,201

2001 733,121 35,402 697,719 0.004% 564,083 443,103 19,389 101,591 0 169,038

2000 664,080 19,237 644,843 0.002% 300,018 180,805 8,293 110,920 0 364,062

1999 600,995 15,116 585,879 0.002% 124,156 30,648 626 92,882 0 476,839

1998 583,859 15,352 568,507 0.002% 116,629 31,992 9 84,628 0 467,230

1997 549,912 13,914 535,998 0.004% 69,986 (1,879) 0 71,865 0 479,926

1996 5,501,684 5,221,560 280,124 0.204% (28,890) (91,636) 128 62,618 0 5,530,574

1995 1,139,916 970,027 169,889 0.234% (281,216) (321,000) 0 39,784 0 1,421,132

1994 1,215,289 1,132,102 83,187 0.244% 434,303 414,000 0 20,303 0 780,986

1993 923,516 897,692 25,824 0.250% 46,814 16,531 0 30,283 0 876,702

1992 178,643 172,079 6,564 0.230% 28,982 (14,945) (5) 43,932 35,446 185,107

1991 96,446 93,530 2,916 0.230% 63,085 20,114 609 42,362 42,362 75,723

1990 18,195 18,195 0 0.208% 56,088 0 0 56,088 56,088 18,195

1989 2 0 2 0.208% 5,602 0 0 5,602 5,602 2

FDIC-Insured Institutions Closed During 2004

Dollars in Thousands

1

1

2

3

2

3

Number of Date of Receiver/

Name and Bank Deposit Total Total FDIC Estimated Closing or Assuming Bank

Location Class Accounts Assets Deposits Disbursements Loss Acquisition and Location

Bank Insurance Fund

Purchase and Assumption - Insured Deposits

Bank of Ephraim Far West Bank

Ephraim, UT SM 8,412 $ 46,181 $ 39,432 $ 39,327 $ 5,379 06.25.04 Provo, UT

Whole Bank Purchase and Assumption - All Deposits2

Guaranty National Bank Hancock Bank of Florida

Tallahassee, FL N 7,135 $ 77,280 $ 69,301 $ 69,306 $ 0 03.12.04 Tallahassee, FL

Purchase and Assumption - All Deposits3

Reliance Bank Union State Bank

White Plains, NY NM 1,184 $ 27,059 $ 24,147 $ 24,147 $ 3,991 03.19.04 Orangeburg, NY

Savings Association Insurance Fund

Direct Payoff

Dollar Savings Bank Federal Deposit

Newark, NJ SB 1,064 $ 15,346 $ 13,005 $ 5,634 $ 0 02.14.04 Insurance Corporation

Codes for N – NM – SB – SM – 

Bank Class: National bank State-chartered bank that is not Savings Bank State-chartered bank that is a member 

a member of the Federal Reserve System of the Federal Reserve System

Estimated losses are as of December 31, 2004. Estimated losses are routinely adjusted with updated information from new appraisals and asset sales, which ultimately affect the asset 

values and projected recoveries.

The buyer purchased essentially all the assets and liabilities of the bank.

The buyer bids one price for the deposit franchise and then bids for optional asset pools for the bank.
115

Deposits in Insured Institutions ($ Millions) Insurance Fund as a Percentage of 

Total Estimated Percentage of Deposit Total Estimated

Insurance Domestic Insured Insured Insurance Domestic Insured

Year2 Coverage Deposits Deposits Deposits Fund Deposits Deposits 3

Estimated Insured Deposits and the Savings Association Insurance Fund, 

December 31, 1989, through September 30, 2004

2004 $ 100,000 $ 1,127,884 $ 943,881 83.7 $ 12,522.7 1.11 1.33

2003 100,000 1,042,729 896,493 86.0 12,240.1 1.17 1.37

2002 100,000 990,231 860,351 86.9 11,746.7 1.19 1.37

2001 100,000 897,278 801,849 89.4 10,935.0 1.22 1.36

2000 100,000 822,610 752,756 91.5 10,758.6 1.31 1.43

1999 100,000 764,359 711,345 93.1 10,280.7 1.35 1.45

1998 100,000 751,413 708,959 94.4 9,839.8 1.31 1.39

1997 100,000 721,503 690,132 95.7 9,368.3 1.30 1.36

1996 100,000 708,749 683,090 96.4 8,888.4 1.25 1.30

1995 100,000 742,547 711,017 95.8 3,357.8 0.45 0.47

1994 100,000 720,823 692,626 96.1 1,936.7 0.27 0.28

1993 100,000 726,473 695,158 95.7 1,155.7 0.16 0.17

1992 100,000 760,902 729,458 95.9 279.0 0.04 0.04

1991 100,000 810,664 776,351 95.8 93.9 0.01 0.01

1990 100,000 874,738 830,028 94.9 18.2 0.00 0.00

1989 100,000 948,144 882,920 93.1 0.0 0.00 0.00

Estimated

Receivership

Year 2 Total Assets Deposits Loss Loss to Funds

Total 754 397,387,543 320,185,772 75,137,917 82,051,424

2004 1 15,346 13,005 0 0

2003 0 0 0 0 0

2002 1 50,246 50,542 0 0

2001 1 2,179,783 1,670,802 363,119 363,119

2000 1 29,530 28,583 1,322 1,322

1999 1 62,956 63,427 1,194 1,194

1998 0 0 0 0 0

1997 0 0 0 0 0

1996 1 32,576 32,745 21,921 21,921

1995 2 423,819 414,692 28,192 27,784

1994 2 136,815 127,508 11,472 16,277

1993 10 7,178,794 5,708,253 268,760 66,468

1992 59 44,196,946 34,773,224 3,121,116 3,674,655

1991 144 78,898,704 65,173,122 8,429,888 9,027,005

1990 213 129,662,398 98,963,960 16,025,234 19,220,753

19895 318 134,519,630 113,165,909 46,865,699 49,630,926

Number, Assets, Deposits, Losses, and Loss to Funds of Insured Thrifts Taken Over 

or Closed Because of Financial Difficulties, 1989 through 20041

Dollars in Thousands

3 4

Prior to July 1, 1995, all thrift closings were the responsibility of the Resolution Trust Corporation (RTC). Since the RTC was terminated on December 31, 1995, and all assets and liabilities 

transferred to the FSLIC Resolution Fund (FRF), all the results of the thrift closing activity from 1989 through 1995 are now reflected on FRF's books. The Savings Association Insurance 

Fund (SAIF) became responsible for all thrifts closed after June 30, 1995; there have been only six such failures. Additionally, SAIF was appointed receiver of one thrift (Heartland FSLA) 

on October 8, 1993, because, at that time, RTC's authority to resolve FSLIC-insured thrifts had not yet been extended by the RTC Completion Act.

Year is the year of failure, not the year of resolution.

The estimated losses represent the projected loss at the fund level from receiverships for unreimbursed subrogated claims of the FRF/SAIF and unpaid advances to receiverships from 

the FRF.

The Loss to Funds represents the total resolution cost of the failed thrifts in the SAIF and FRF-RTC funds, which includes corporate revenue and expense items such as interest expense 

on Federal Financing Bank debt, interest expense on escrowed funds, and interest revenue on advances to receiverships, in addition to the estimated losses for receiverships.

Total for 1989 excludes nine failures of the former FSLIC.

1

2

3

4

5

1

For 2004, the numbers are as of September 30, and prior years reflect December 31.

Starting in 1990, deposits in insured institutions exclude those deposits held by Savings Association Insurance Fund members that are insured by the Bank Insurance Fund and include 

those deposits held by Bank Insurance Fund members that are insured by the Savings Association Insurance Fund.

Estimated insured deposits reflect deposit information as reported in the fourth quarter FDIC Quarterly Banking Profile. Before 1991, insured deposits were estimated using percentages 

determined from the June 30 Call Reports.

1

2

3
116

2004 2003 2002

Deposit Insurance 176 141 112

Approved 176 140 112

Denied 0 1 0

New Branches 1,447 1,227 1,285

Approved 1,447 1,227 1,285

Denied 0 0 0

Mergers 311 304 201

Approved 311 304 201

Denied 0 0 0

Requests for Consent to Serve●301 369 295

Approved 301 368 295

Section 19 13 13 12

Section 32 288 355 283

Denied 0 1 0

Section 19 0 0 0

Section 32 0 1 0

Notices of Change in Control 18 30 31

Letters of Intent Not to Disapprove 18 30 31

Disapproved 0 0 0

Brokered Deposit Waivers 32 28 33

Approved 32 28 33

Denied 0 0 0

Savings Association Activities■70 56 69

Approved 70 56 69

Denied 0 0 0

State Bank Activities/Investments▼27 19 26

Approved 27 19 26

Denied 0 0 0

Conversions of Mutual Institutions 12 7 4

Non-Objection 12 7 4

Objection 0 0 0

Under Section 19 of the Federal Deposit Insurance (FDI) Act, an insured institution must receive FDIC approval before 

employing a person convicted of dishonesty or breach of trust. Under Section 32, the FDIC must also approve any change 

of directors or senior executive officers at a state nonmember bank that is not in compliance with capital requirements 

or is otherwise in troubled condition.

Amendments to Part 303 of the FDIC Rules and Regulations changed FDIC oversight responsibility in October 1998.

Section 24 of the FDI Act, in general, precludes an insured state bank from engaging in an activity not permissible for

a national bank and requires notices to be filed with the FDIC. 

FDIC Actions on Financial Institutions Applications 2002-2004

●

■

▼
117

2004 2003 2002

Total Number of Actions Initiated by the FDIC 217 174 162

Termination of Insurance 

Involuntary Termination

Sec. 8a For Violations, Unsafe/Unsound Practices or Condition 0 0 0

Voluntary Termination 

Sec.8a By Order Upon Request 0 0 0

Sec.8p No Deposits 2 5 7

Sec.8q Deposits Assumed 38 12 7

Sec. 8b Cease-and-Desist Actions

Notices of Charges Issued 0 2 4

Consent Orders 28 33 44

Sec. 8e Removal/Prohibition of Director or Officer 

Notices of Intention to Remove/Prohibit 3 4 4

Consent Orders 58 31 15

Sec. 8g Suspension/Removal When Charged With Crime 1 0 0

Civil Money Penalties Issued

Sec.7a Call Report Penalties 0 0 1

Sec.8i Civil Money Penalties 68 55 65

Sec. 10c Orders of Investigation 15 20 7

Sec. 19 Denials of Service After Criminal Conviction 1 0 0

Sec. 32 Notices Disapproving Officer/Director’s Request for Review 0 1 0

Truth-in-Lending Act Reimbursement Actions

Denials of Requests for Relief 0 0 0

Grants of Relief 0 0 0

Banks Making Reimbursement ■73 96 106

Suspicious Activity Reports (Open and closed institutions)■83,453 62,179 42,123

Other Actions Not Listed 3 11 8

Two actions included Sec.8 (c) temporary orders.

These actions do not constitute the initiation of a formal enforcement action and, therefore, are not included in the total 

number of actions initiated.

Compliance, Enforcement and Other Related Legal Actions 2002-2004

●

●

■
118

In addition to his professional

experience as a banker, Mr. Powell

has served on numerous boards 

at universities, civic associations, 

hospitals and charities. 

Of note, Mr. Powell has served as

the Chairman of the Board of Regents

of the Texas A&M University System,

which has more than 90,000 students,

the Chairman of the Amarillo Chamber

of Commerce, and currently serves

on the Advisory Board of the 

George Bush School of Government

and Public Service. 

Mr. Powell has also served on the

boards of many other nonprofit, 

public and community organizations,

including the United Way, the

Harrington Regional Medical Center,

the City of Amarillo Housing Board,

and a number of other educational

institutions. 

He received his B.S. in economics

from West Texas State University and

is a graduate of The Southwestern

Graduate School of Banking at

Southern Methodist University.

Donald E. Powell

Don Powell was sworn in as the 

18th Chairman of the FDIC in 

August 2001. During his tenure he 

has worked to maintain the FDIC’s 

reputation of excellence while 

positioning the organization to 

meet the needs of a rapidly evolving

banking industry.

Prior to being named Chairman of 

the FDIC by President George W. Bush, 

Mr. Powell – a life-long Texan – 

was President and CEO of The First 

National Bank of Amarillo, where he 

started his banking career in 1971. 

Appendix B–

More About the FDIC

James Kegley

FDIC Board of Directors

Donald E. Powell, Chairman, John M. Reich (seated), 

James E. Gilleran, Thomas L. Curry, and John D. Hawke, Jr., (standing, left to right)
119

James E. Gilleran

Mr. Gilleran became Director of the

Office of Thrift Supervision (OTS) 

on December 7, 2001. As OTS

Director, Mr. Gilleran is an ex-officio

member of the FDIC Board.

Mr. Gilleran was Chairman and CEO

of the Bank of San Francisco from

October 1994 until December 2000.

From 1989 to 1994, he was the

California State Banking Superintendent. He served as Chairman 

of the Conference of State Bank

Supervisors (CSBS) from 1993 to

1994, and was a member of the

CSBS’s Bankers Advisory Council

until 2000. 

Prior to his service as the California

Banking Superintendent, Mr. Gilleran

was managing partner of the

Northern California practice of the

public accounting firm KPMG Peat

Marwick. Before serving as managing

partner, he was in charge of KPMG’s

banking practice in the western

region of the U.S. He was with

KPMG from 1958 through 1987.

Mr. Gilleran has also been involved 

in a number of educational, civic and

charitable organizations, including

serving as Chairman of both the

American Red Cross of the 

San Francisco Bay Area and 

the Metropolitan YMCA.

Mr. Gilleran is a certified public

accountant and a member of the

American Institute of CPAs. He 

graduated from Pace University in

1955, and received his law degree

from Northwestern California

University in 1996. 

John M. Reich 

Mr. Reich became Vice Chairman 

of the FDIC Board of Directors 

on November 15, 2002, and has

served as a Board member since

January 16, 2001. Following

Chairman Donna Tanoue’s resignation

in July 2001 until Mr. Powell took

office in August 2001, Mr. Reich was

Acting Chairman of the FDIC.

Mr. Reich enjoyed a 23-year career

as a community banker in Illinois 

and Florida, the last 10 years of

which were as President and CEO 

of the National Bank of Sarasota,

Sarasota, FL.

Before joining the FDIC, Mr. Reich

served for 12 years on the staff of

U.S. Senator Connie Mack (R-FL).

From 1998 through 2000, he was

Senator Mack’s Chief of Staff, 

directing and overseeing all of the

Senator’s offices and committee

activities, including the Senate

Banking Committee. 

Mr. Reich’s substantial community

service includes serving as Chairman

of the Board of Trustees of a public

hospital facility in Ft. Myers, FL, and

Chairman of the Board of Directors

of the Sarasota Family YMCA. He

has also served as a Board member

for a number of civic organizations,

and was active for many years in

youth baseball programs.

Mr. Reich holds a B.S. degree from

Southern Illinois University and 

an M.B.A. from the University of 

South Florida. He is also a graduate

of Louisiana State University’s

School of Banking of the South.

Thomas J. Curry

Mr. Curry took office as a member 

of the FDIC Board of Directors on

January 12, 2004. Previously, he 

had served five Massachusetts

Governors as the Commonwealth’s

Commissioner of Banks, from 

1995 to 2003. He served as Acting

Commissioner from 1994 to 1995,

and as First Deputy Commissioner

from 1987 to 1994. 

Mr. Curry currently serves on 

the Board of Directors of the

Neighborhood Reinvestment

Corporation.

Mr. Curry was also Chairman of the

Conference of State Bank Supervisors

from 2000 to 2001, and a member 

of the State Liaison Committee 

of the Federal Financial Institutions

Examination Council from 1996 

to 2003.

Mr. Curry joined the Commonwealth’s

Division of Banks in 1986. He entered

state government in 1982 as an

attorney with the Massachusetts

Secretary of State’s Office.

Mr. Curry is a graduate of Manhattan

College (summa cum laude), where

he was elected to Phi Beta Kappa.

He received his law degree from 

the New England School of Law. 
120

John D. Hawke, Jr. 

Mr. Hawke was sworn in as the 

28th Comptroller of the Currency on

December 8, 1998. After serving 10

months under a recess appointment,

he was sworn in for a full five-year term

on October 13, 1999. As Comptroller,

Mr. Hawke served as an FDIC Board

member until his resignation on

October 13, 2004. Mr. Hawke’s successor to the Board is Julie Williams,

Acting Comptroller of the Currency. 

Prior to his appointment as Comptroller,

Mr. Hawke served for three and 

a half years as Under Secretary of

the Treasury for Domestic Finance.

Before joining Treasury, Mr. Hawke

was a senior partner at the

Washington, DC, law firm of Arnold

& Porter, where he began as an

associate in 1962. While there, 

he headed the financial institutions

practice, and from 1987 to 1995,

served as the firm’s Chairman. In

1975, he left the firm to serve as

General Counsel to the Board of

Governors of the Federal Reserve

System, returning in 1978.

Mr. Hawke graduated from Yale

University in 1954 with a B.A. 

in English. From 1955 to 1957, 

he served on active duty with the 

U.S. Air Force. After graduating in

1960 from Columbia University 

School of Law, where he was 

Editor-in-Chief of the Columbia Law

Review, Mr. Hawke was a law clerk

for Judge E. Barrett Prettyman on

the U.S. Court of Appeals for the

District of Columbia Circuit. From

1961 to 1962, he served as counsel

to the Select Subcommittee on

Education in the House of

Representatives.

From 1970 to 1987, Mr. Hawke

taught courses on federal regulation

of banking at Georgetown University

Law Center. He has also taught

courses on bank acquisitions and

financial regulation, and served as

the Chairman of the Board of Advisors

of the Morin Center for Banking Law

Studies in Boston. Mr. Hawke also

has written extensively on matters

relating to the regulation of financial

institutions. 

Julie L. Williams

Ms. Williams is currently serving as

Acting Comptroller of the Currency,

succeeding John D. Hawke, Jr. and

is also his successor on the FDIC

Board of Directors. Ms. Williams has

been First Senior Deputy Comptroller

since 1999 and also Chief Counsel

since 1994. She was also Acting

Comptroller from April to December

1998. 

As Chief Counsel, Ms. Williams was

responsible for all of the agency’s

legal activities and also supervised

the Licensing Department and the

Community Affairs Department. 

Ms. Williams served as a member 

of the OCC’s Executive Committee.

She has led the Executive Committee

in providing policy and strategic

direction to the agency.

Previously, Ms. Williams had been

Senior Deputy Chief Counsel at 

the Office of Thrift Supervision, and

served since 1983 at that agency

and its predecessor, the Federal

Home Loan Bank Board. She worked

on securities and banking law issues

at Fried, Frank, Harris, Shriver and

Kampelman in Washington from

1975 to 1983.

Ms. Williams is a graduate of

Goddard College, Vermont, and 

graduated first in her class at Antioch

School of Law, Washington, DC.

She is the author of numerous 

articles on banking, securities and

financial institutions law. 
121 

FDIC Organization Chart/Officials

as of December 31, 2004 Board of Directors

Donald E. Powell

John M. Reich

Thomas J. Curry

James E. Gilleran

Julie L. Williams (acting)

Office of the Chairman

Donald E. Powell

Chairman

Office of Inspector 

General

Gaston L. Gianni, Jr.

Inspector General

Deputy 

to the Chairman

John M. Brennan

Chief 

Information Officer

Michael E. Bartell

Deputy to the Chairman 

and Chief Operating Officer

John F. Bovenzi

Division of Insurance 

and Research

Arthur J. Murton

Director

Division of Resolutions 

and Receiverships

Mitchell L. Glassman

Director

Division of 

Administration

Arleas Upton Kea

Director

Legal 

Division 

William F. Kroener, III

General Counsel

Division of Supervision 

and Consumer Protection

Michael J. Zamorski

Director

Division of Information 

Resources Management

Michael E. Bartell

Director

Office of Diversity and 

Economic Opportunity

D. Michael Collins

Director

Office of the 

Ombudsman

Cottrell L. Webster

Ombudsman

Division of 

Finance

Frederick S. Selby

Director

Office of Enterprise 

Risk Management

James H. Angel, Jr.

Director

General

Counsel

William F. Kroener, III

Deputy to the Chairman 

and Chief Financial Officer

Steven O. App 

Office of 

Legislative Affairs

Alice C. Goodman

Director

Office of 

Public Affairs

Stan Ivie

Interim Director

Chief of Staff

Jodey C. Arrington

Vice Chairman

John M. Reich

Corporate 

University

David C. Cooke

Chief, Learning Officer
122

15,000

12,000

9,000

6,000

3,000

0

RTC

FDIC

Total Staffing

Note:

All staffing totals reflect year-end balances.

The Resolution Trust Corporation (RTC) was fully staffed with FDIC employees and, until February 1992, the RTC was managed 

by the FDIC Board of Directors. Upon the RTC sunset at year-end 1995, all of its remaining workload and employees were 

transferred to the FDIC.

1995 96 97 98 99 2000 01 02 03 04

Staffing Trends 1995-2004

2,043 

9,813 9,151 7,793 7,359 7,266 6,452 6,167 5,430 5,311 5,078

11,856 9,151 7,793 7,359 7,266 6,452 6,167 5,430 5,311 5,078 

Corporate Staffing
123 

Total Washington Regional/ Field 

2004 2003 2004 2003 2004 2003

Executive Offices●42 41 42 40 0 1

Division of Supervision and Consumer Protection 2,604 2,797 179 188 2,425 2,609

Division of Resolutions and Receiverships 504 520 99 100 405 420

Legal Division 488 506 303 315 185 191

Division of Finance 195 205 195 205 0 0

Division of Information Resources Management 386 391 324 331 62 60

Division of Insurance and Research 191 186 157 156 34 30

Division of Administration▼415 424 274 281 141 143

Office of Inspector General 157 150 111 107 46 43

Office of Diversity and Economic Opportunity 34 33 34 33 0 0

Office of the Ombudsman 18 18 15 15 3 3

Office of Enterprise Risk Management 12 14 12 14 0 0

Corporate University▼32 26 32 26 0 0

Total 5,078 5,311 1,777 1,811 3,301 3,500

Includes the Offices of the Chairman, Vice Chairman, Director (Appointive), Chief Operating Officer, Chief Financial Officer, Chief Information Officer, Legislative Affairs, and 

Public Affairs.

Corporate University was established on February 3, 2003. The Corporate training function was previously in the Division of Administration.

The Office of Internal Control Management was renamed to the Office of Enterprise Risk Management on April 2, 2004.

Number of Officials and Employees of the FDIC 2003-2004 (year-end)

●

▼

■

■
124

Home Page on the Internet

www.fdic.gov

A wide range of banking, consumer

and financial information is available

on the FDIC’s Internet home page.

This includes the FDIC’s Electronic

Deposit Insurance Estimator, “EDIE,”

which estimates an individual’s

deposit insurance coverage; the

Institution Directory, financial 

profiles of FDIC-insured institutions;

Community Reinvestment Act 

evaluations and ratings for institutions

supervised by the FDIC; Call Reports,

banks’ reports of condition and

income; and Money Smart, a

training program to help individuals

outside the financial mainstream

enhance their money management

skills and create positive banking

relationships. Readers also can

access a variety of consumer 

pamphlets, FDIC press releases,

speeches and other updates on 

the agency’s activities, as well as

corporate databases and customized

reports of FDIC and banking industry

information.

FDIC Call Center

Phone: 877-275-3342 

(877-ASK FDIC)

202-736-0000 

Hearing

Impaired: 800-925-4618

The FDIC Call Center in Washington, DC,

is the primary telephone point of 

contact for general questions from 

the banking community, the public and 

FDIC employees. The Call Center

directly, or in concert with other FDIC

subject matter experts, responds to

questions about deposit insurance and

other consumer issues and concerns,

as well as questions about FDIC

programs and activities. The Call

Center also makes referrals to other

federal and state agencies as needed.

Hours of operation are 8:00 a.m. to

8:00 p.m. Eastern Time. Information 

is also available in Spanish. Recorded

information about deposit insurance

and other topics is available 24 hours

a day at the same telephone number.

Public Information Center

801 17th Street, NW

Room 100

Washington, DC 20434

Phone: 877-275-3342 

(877-ASK FDIC), or

202-416-6940 

Fax: 202-416-2076

E-mail: publicinfo@fdic.gov

FDIC publications, press releases,

speeches and Congressional 

testimony, directives to financial

institutions, policy manuals and other

documents are available on request

or by subscription through the 

Public Information Center. These

documents include the Quarterly

Banking Profile, FDIC Consumer

News and a variety of deposit 

insurance and consumer pamphlets.

Sources of Information

Office of the Ombudsman

550 17th Street, NW

Washington, DC 20429

Phone: 877-275-3342 

(877- ASK FDIC)

Fax: 202-942-3040, or 

202-942-3041

E-mail: ombudsman@fdic.gov

The Office of the Ombudsman

responds to inquiries about the 

FDIC in a fair, impartial and timely

manner. It researches questions and

complaints from bankers and the

public. The office also recommends

ways to improve FDIC operations,

regulations and customer service.
125 

San Francisco Regional Office

25 Ecker Street

Suite 2300

San Francisco, California 94105

(415) 546-0160

Alaska Montana

Arizona Nevada

California Oregon

Guam Utah

Hawaii Washington

Idaho Wyoming

Kansas City Regional Office

2345 Grand Boulevard

Suite 1200

Kansas City, Missouri 64108

(816) 234-8000

Iowa North Dakota

Kansas South Dakota

Minnesota 

Missouri

Nebraska

Dallas Regional Office

1910 Pacific Avenue

Suite 1900

Dallas, Texas 75201

(214 ) 754-0098

Colorado

New Mexico

Oklahoma

Texas

Memphis Area Office

5100 Poplar Avenue

Suite 1900

Memphis, Tennessee 38137

(901) 685-1603

Arkansas 

Louisiana 

Mississippi

Tennessee

Chicago Regional Office

500 West Monroe Street

Suite 3500

Chicago, Illinois 60661

(312) 382-7500

Illinois Wisconsin

Indiana 

Kentucky

Michigan 

Ohio

Atlanta Regional Office

10 Tenth Street, NE

Suite 800

Atlanta, Georgia 30309

(678) 916-2200

Alabama Virginia

Florida West Virginia

Georgia

North Carolina

South Carolina

New York Regional Office

20 Exchange Place

4th Floor

New York, New York 10005

(917) 320-2500

Delaware Puerto Rico

District of Columbia Virgin Islands

Maryland 

New Jersey

New York

Pennsylvania

Boston Area Office

15 Braintree Hill Office Park

Suite 100

Braintree, Massachusetts 02184

(781) 794-5500

Connecticut

Maine

Massachusetts 

New Hampshire

Rhode Island

Vermont

Regional and Area Offices
126

Appendix C – Office of Inspector General’s Assessment of the Management 

and Performance Challenges Facing the FDIC

The following chart shows the FDIC’s most significant management and performance challenges as identified by the 

Office of Inspector General (OIG):

No. Challenge Brief Description

1. Corporate Governance in Corporate governance is generally defined as the fulfillment of the broad 

Insured Depository Institutions stewardship responsibilities entrusted to the board of directors, officers, 

and external and internal auditors of a corporation. A number of well-publicized

announcements of business and accountability failings, including those 

of financial institutions, have raised questions about the credibility 

of management oversight and accounting practices in the United States. 

In certain cases, board members and senior management engaged in highrisk activities without proper risk-management processes, did not maintain 

adequate loan policies and procedures, and circumvented or disregarded 

various laws and banking regulations. In an increasingly consolidated financial

industry, effective corporate governance is needed to ensure adequate stress

testing and risk-management processes covering the entire organization. 

Adequate corporate governance protects the depositor, institution, nation’s 

financial system, and FDIC in its role as deposit insurer. A lapse in corporate 

governance can lead to a rapid decline in public confidence, with potentially 

disastrous results to the institution. The FDIC’s efforts in achieving sound 

corporate governance without undue regulatory burden remain a management

challenge. 

2. Management and Analysis of A primary goal of the FDIC under its insurance program is to ensure that its 

Risks to the Insurance Funds deposit insurance funds do not require augmentation by the U.S. Treasury.

Achieving this goal is a considerable challenge that requires effective communication and coordination with the other federal banking agencies. The 

FDIC engages in an ongoing process of proactively identifying risks to the 

deposit insurance funds and adjusting the risk-based deposit insurance 

premiums charged to the institutions. The consolidations that have occurred 

among banks, securities firms, insurance companies, and other financial 

services providers resulting from the Gramm-Leach-Bliley Act (GLBA) pose 

additional risks to the FDIC’s insurance funds. Large banks may pose greater

risks to the insurance funds as a result of the Basel II capital accord, which 

aims to align capital reserves more closely with the risks faced by banks 

and thrifts operating internationally. Basel II can result in reduced capital 

requirements at large institutions and increase competitive pressure on 

smaller institutions. Basel II will have far-reaching effects on the management

and supervision of the largest, most complex banking organizations in the 

world. The United States has an important role in Basel II implementation 

because it supervises more bank assets than the other accord participants. 
127 

Appendix C – Office of Inspector General’s Assessment of the Management 

and Performance Challenges Facing the FDIC (continued)

Challenge Brief Description

3. Security Management The FDIC relies heavily upon automated information systems to collect, 

process, and store vast amounts of banking information. This information 

is used by financial regulators, academia, and the public to assess market 

and institution conditions, develop regulatory policy, and conduct research 

and analysis on important banking issues. Ensuring the confidentiality, 

integrity, and availability of this information in an environment of increasingly 

sophisticated security threats requires a strong, enterprise-wide information 

security program at the FDIC and insured depository institutions. Additional 

security-related threats include those focusing on disrupting the economic 

security of our nation. The FDIC and insured depository institutions need 

to ensure that sound disaster recovery and business continuity planning 

is present to safeguard depositors, investors, and others who depend 

on the financial services.

4. Money Laundering and The nation faces a new and changing threat unlike any we have faced 

Terrorist Financing before — the global threat of terrorism. In response to this threat, the 

Congress enacted the Uniting and Strengthening America by Providing 

Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, 

Public Law 107-56 (USA PATRIOT Act), which expands the Treasury 

Department’s authority initially established under the Bank Secrecy Act 

of 1970 (BSA) to regulate the activities of U.S. financial institutions, 

particularly their relations with individuals and entities with foreign ties. 

Specifically, the USA PATRIOT Act expands the BSA beyond its original 

purpose of deterring and detecting money laundering to also address 

terrorist financing activities. In today’s global banking environment, where 

funds are transferred instantly and communication systems make services 

available internationally, a lapse at even a small financial institution outside 

of a major metropolitan area can have significant implications across the 

nation. The reality today is that all institutions are at risk of being used 

to facilitate criminal activities, including terrorist financing. 

5. Protection of In addition to its mission of maintaining public confidence in the nation’s 

Consumers’ Interests financial system, the FDIC also serves as an advocate for consumers 

through its oversight of a variety of statutory and regulatory requirements 

aimed at protecting consumers from unfair and unscrupulous banking 

practices. The FDIC is legislatively mandated to enforce various statutes 

and regulations regarding consumer protection and civil rights with respect 

to state-chartered, non-member banks and to encourage community 

investment initiatives by these institutions. Ensuring the protection of 

consumer interests is a major challenge in an environment of increasingly 

large financial institutions that lack the historic geographic boundaries or 

operations and offer an increasing array of consumer products. One key 

concern is identity protection. It is essential that customer information is 

safeguarded in order to maintain confidence in our nation’s financial system.
128

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

Appendix C – Office of Inspector General’s Assessment of the Management 

and Performance Challenges Facing the FDIC (continued)

Challenge Brief Description

6. Corporate Governance Corporate governance within the FDIC is the responsibility of the Board 

in the FDIC of Directors, officers, and operating managers in fulfilling the Corporation’s 

broad mission functions. It also provides the structure for setting goals and 

objectives, the means to attaining those goals and objectives, and ways 

of monitoring performance. Management of the FDIC’s corporate resources 

is essential for efficiently achieving the FDIC’s program goals and objectives.

In the spirit of the President’s Management Agenda, the FDIC is undertaking

a number of initiatives to improve operational efficiency and effectiveness, 

including major new procurement initiatives related to information technology,

numerous new projects to field state-of-the-art information systems, and 

increasing security requirements to protect FDIC personnel and resources. 

Along with the recent announcements concerning corporate downsizing, 

effective corporate governance is a significant challenge.

7. Resolution and Receivership One of the FDIC’s responsibilities is planning and efficiently handling the 

Activities franchise marketing of failing FDIC-insured institutions and providing prompt, 

responsive, and efficient resolution of failed financial institutions. These 

activities maintain confidence and stability in our financial system. Functions 

related to pre-closing, closing, and post-closing of failed financial institutions 

are accompanied by significant challenges to ensure the least-costly 

strategies are used to achieve the FDIC’s mission. 
2004

This Annual Report was produced by talented 

and dedicated staff. To these individuals, we would 

like to offer our sincere thanks and appreciation. 

Special recognition is given to the following individuals 

for their contributions:

Sam Collicchio

Pearline Crosland

Jannie F. Eaddy

Terry Ferril

Barbara Glasby

Addie Hargrove

Patricia Hughes

Mia Jordan

Joan Spirtas

Federal

Deposit

Insurance

Corporation