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.