Message from the Chief Financial Officer • Steven O. App 11

are stewards are fairly presented. I applaud the

hard work and dedication of the FDIC staff.

At the conclusion of 2009 and moving forward

into 2010, the DIF balance remains negative,

although there were indications by the end of

the first quarter of 2010 that the condition of the

banking industry may be stabilizing. The DIF’s

2009 financial statements reflect the impact of

a difficult banking environment, in which 140

banks failed. This total exceeds all bank failures

between 1994 and 2008, and isthe highest annual

number since 1992, when 179 failures occurred.

Financial Results for 2009 

The DIF’s comprehensive loss totaled $38.1

billion for 2009 compared to a comprehensive

loss of $35.1 billion for the previous year. As a

result, the DIF balance declined from $17.3 billion to negative $20.9 billion as of December 31,

2009. The year-over-year increase of $3.0 billion in comprehensive loss was primarily due

to a $15.9 billion increase in the provision for

insurance losses, a $4.0 billion increase in the

unrealized loss on U.S. Treasury (UST) investments, and a $1.4 billion decrease in the interest

earned on UST obligations, partially offset by

a $14.8 billion increase in assessment revenue

and a $3.1 billion increase in other revenue

(primarily from guarantee termination fees and

debt guarantee surcharges).

The provision for insurance losses was $57.7 billion in 2009. The total provision consists primarily

of the provision for future failures ($20.0 billion)

and the losses estimated at failure for the 140 resolutions occurring during 2009 ($35.6 billion).

Assessment revenue was $17.7 billion for 2009.

This is a $14.8 billion increase from 2008, and

is due to the collection of a $5.5 billion special

Message from the Chief Financial Officer • Steven O. App

I am pleased to present the Federal Deposit

Insurance Corporation’s (FDIC) 2009 Annual 

Report (also referred to as the Performance 

and Accountability Report). The report covers

financial and program performance information, and summarizes our successes for the year.

The FDIC takes pride in providing timely, reliable, and meaningful information to its many

stakeholders.

For the eighteenth consecutive year, the U.S.

Government Accountability Office (GAO) issued

unqualified audit opinions for the two funds

administered by the Corporation: the Deposit

Insurance Fund (DIF) and the Federal Savings

and Loan Insurance Corporation (FSLIC) Resolution Fund (FRF). These unqualified audit

opinions validate our efforts to ensure that the

financial statements of the funds for which we
12 FDIC 2009 Annual Report

assessment in September 2009 and significantly

higher regular assessment revenue. Major factors

contributing to the increase in regular assessment revenue included changes to the risk-based

assessment regulations, ratings downgrades of

many institutions (which pushed them into higher assessment rate categories), the decline of the

one-time assessment credit, and a larger assessment base.

Although the DIF ended the year with a

negative $20.9 billion fund balance, the DIF’s

liquidity was significantly enhanced by prepaid

assessment inflows of $45.7 billion. Cash and

marketable securities stood at $66.0 billion at

year-end, including $6.4 billion in cash and

marketable securities related to the Temporary

Liquidity Guarantee Program (TLGP). Hence,

the DIF is well positioned to fund resolution

activity in 2010 and beyond. The prepaid assessments, while increasing DIF cash upon receipt,

did not initially affect the fund balance, since

the funds collected were initially recorded as an

offsetting liability; they are subsequently recognized quarterly as revenue when earned.

In accordance with the requirements of the

Federal Managers’ Financial Integrity Act of

1982, the FDIC’s management conducted its

annual assessment and concluded that the system of internal controls, taken as a whole, complies with internal control standards prescribed

by GAO and provides reasonable assurance that

the related objectives are being met, with the

exception of a material weakness in internal

controls related to estimating losses to the DIF

from resolution transactions involving loss-share

agreements, which was identified by GAO during the course of the financial statement audit.

Separately, GAO determined that a significant

deficiency existed over information systems.

The FDIC believes that additional resources

added throughout 2009, control improvements

implemented during the fourth quarter of 2009,

and control enhancements to be completed

by the end of the second quarter of 2010, will

largely address GAO’s concerns in these areas.

The FDIC is confident about the comprehensiveness of these control enhancements and does n

expect GAO to identify repeat findings for 2010.

We will continue to enhance our control environment throughout the year.

During 2010, we will keep working toward

achieving the Corporation’s strategic goals

and objectives. These include identifying and

addressing risks to the insurance funds, continuing work on U.S. government initiatives to

strengthen the financial system, and providing

Congress, other regulatory agencies, insured

depository institutions, and the public with critical and timely information and analyses on the

financial condition of both the banking industry

and the FDIC-managed funds.

Sincerely,

Steven O. App