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2009 Annual Report

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IV. Financial Statements and Notes

Deposit Insurance Fund (DIF)

Deposit Insurance Fund Balance Sheet at December 31
Dollars in Thousands
  2009 2008
Cash and cash equivalents $ 54,092,423 $ 1,011,430
Cash and cash equivalents-restricted-systemic risk (Note 16) 6,430,589 2,377,387
Investment in U.S. Treasury obligations, net (Note 3) 5,486,799 27,859,080
Assessments receivable, net (Note 9) 280,510 1,018,486
Receivables and other assets-systemic risk (Note 16) 3,298,819 1,138,132
Trust preferred securities (Note 5) 1,961,824 0
Interest receivable on investments and other assets, net 220,588 405,453
Receivables from resolutions, net (Note 4) 38,408,622 15,765,465
Property and equipment, net (Note 6) 388,817 368,761
Total Assets $ 110,568,991 $ 49,944,194
Accounts payable and other liabilities $ 273,338 $ 132,597
Unearned revenue-prepaid assessments (Note 9) 42,727,101 0
Liabilities due to resolutions (Note 7) 34,711,726 4,724,462
Deferred revenue-systemic risk (Note 16) 7,847,447 2,077,880
Postretirement benefit liability (Note 13) 144,952 114,124
Contingent liabilities for:    
Anticipated failure of insured institutions (Note 8) 44,014,258 23,981,204
Systemic risk (Note 16) 1,411,966 1,437,638
Litigation losses (Note 8) 300,000 200,000
Total Liabilities 131,430,788 32,667,905
Commitments and off-balance-sheet exposure (Note 14)    
Fund Balance
Accumulated Net (Loss) Income (21,001,312) 15,001,272
Unrealized Gain on U.S. Treasury investments, net (Note 3) 142,127 2,250,052
Unrealized postretirement benefit (Loss) Gain (Note 13) (2,612) 24,965
Total Fund Balance (20,861,797) 17,276,289
Total Liabilities and Fund Balance $ 110,568,991 $ 49,944,194
The accompanying notes are an integral part of these financial statements.

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

Dollars in Thousands
  2009 2008
Interest on U.S. Treasury obligations $ 704,464 $ 2,072,317
Assessments (Note 9) 17,717,374 2,964,518
Systemic risk revenue (Note 16) 1,721,626 1,463,537
Realized gain on sale of securities (Note 3) 1,389,285 774,935
Other revenue (Note 10) 3,173,611 31,017
Total Revenue 24,706,360 7,306,324
Expenses and Losses
Operating expenses (Note 11) 1,271,099 1,033,490
Systemic risk expenses (Note 16) 1,721,626 1,463,537
Provision for insurance losses (Note 12) 57,711,772 41,838,835
Insurance and other expenses 4,447 3,693
Total Expenses and Losses 60,708,944 44,339,555
Net Loss (36,002,584) (37,033,231)
Unrealized (Loss) Gain on U.S. Treasury investments, net (Note 3) (2,107,925) 1,891,144
Unrealized postretirement benefit (Loss) Gain (Note 13) (27,577) 5,340
Comprehensive Loss (38,138,086) (35,136,747)
Fund Balance-Beginning 17,276,289 52,413,036
Fund Balance-Ending $ (20,861,797) $ 17,276,289
The accompanying notes are an integral part of these financial statements.

Deposit Insurance Fund Statement of Cash Flows for the Years Ended December 31
Dollars in Thousands
  2009 2008
Operating Activities
Net Loss $ (36,002,584) $ (37,033,231)
Adjustments to reconcile net loss to net cash provided by (used by)
operating activities:
Amortization of U.S. Treasury obligations 210,905 457,289
Treasury inflation-protected securities inflation adjustment 10,837 (271,623)
Gain on sale of U.S. Treasury obligations (1,389,285) (774,935)
Depreciation on property and equipment 70,488 55,434
Loss on retirement of property and equipment 924 447
Provision for insurance losses 57,711,772 41,838,835
Unrealized (Loss) Gain on postretirement benefits (27,577) 5,340
Guarantee termination fee from Citigroup (1,961,824) 0
Systemic risk expenses 0 (2,352)
Change in Operating Assets and Liabilities:
Decrease (Increase) in assessments receivable, net 737,976 (773,905)
Decrease in interest receivable and other assets 192,750 402,225
(Increase) in receivables from resolutions (60,229,760) (32,955,471)
(Increase) in receivable-systemic risk (2,160,688) (21,285)
Increase (Decrease) in accounts payable and other liabilities 140,740 (18,838)
Increase (Decrease) in postretirement benefit liability 30,828 (2,034)
(Decrease) in contingent liabilities-systemic risk (25,672) 0
Increase in liabilities due to resolutions 29,987,265 4,724,462
Increase in unearned revenue-prepaid assessments 42,727,101 0
Increase in deferred revenue-systemic risk 5,769,567 2,377,387
Net Cash Provided by (Used by) Operating Activities 35,793,763 (21,992,255)
Investing Activities
Provided by:    
Maturity of U.S. Treasury obligations, held-to-maturity 0 3,304,350
Maturity of U.S. Treasury obligations, available-for-sale 6,382,027 3,930,226
Sale of U.S. Treasury obligations 15,049,873 13,974,732
Used by:    
Purchase of property and equipment (91,468) (72,783)
Net Cash Provided by Investing Activities 21,340,432 21,136,525
Net Increase (Decrease) in Cash and Cash Equivalents 57,134,195 (855,730)
Cash and Cash Equivalents-Beginning 3,388,817 4,244,547
Unrestricted Cash and Cash Equivalents-Ending 54,092,423 1,011,430
Restricted Cash and Cash Equivalents-Ending 6,430,589 2,377,387
Cash and Cash Equivalents-Ending $ 60,523,012 $ 3,388,817
The accompanying notes are an integral part of these financial statements.

DECEMBER 31, 2009 AND 2008

1. Legislation and Operations of the Deposit Insurance Fund

The Federal Deposit Insurance Corporation (FDIC) is the independent deposit insurance agency created by Congress in 1933 to maintain stability and public confidence in the nation's banking system. Provisions that govern the operations of the FDIC are generally found in the Federal Deposit Insurance (FDI) Act, as amended (12 U.S.C. 1811, et seq.). In carrying out the purposes of the FDI Act, as amended, the FDIC insures the deposits of banks and savings associations (insured depository institutions), and in cooperation with other federal and state agencies promotes the safety and soundness of insured depository institutions by identifying, monitoring and addressing risks to the Deposit Insurance Fund (DIF). An active institution's primary federal supervisor is generally determined by the institution's charter type. Commercial and savings banks are supervised by the FDIC, the Office of the Comptroller of the Currency, or the Federal Reserve Board, while savings associations (known as "thrifts") are supervised by the Office of Thrift Supervision.

The FDIC is the administrator of the DIF. The DIF is responsible for protecting insured bank and thrift depositors from loss due to institution failures. The FDIC is required by 12 U.S.C. 1823(c) to resolve troubled institutions in a manner that will result in the least possible cost to the deposit insurance fund unless a systemic risk determination is made that compliance with the least-cost test would have serious adverse effects on economic conditions or financial stability and any action or assistance taken under the systemic risk determination would avoid or mitigate such adverse effects. A systemic risk determination can only be invoked by the Secretary of the U.S. Treasury, in consultation with the President, and upon the written recommendation of twothirds of both the FDIC Board of Directors and the Board of Governors of the Federal Reserve System. The systemic risk provision requires the FDIC to recover any related losses to the DIF through one or more special assessments from all insured depository institutions and, with the concurrence of the U.S. Treasury (Treasury), depository institution holding companies (see Note 16).

The FDIC is also the administrator of the FSLIC Resolution Fund (FRF). The FRF is a resolution fund responsible for the sale of remaining assets and satisfaction of liabilities associated with the former Federal Savings and Loan Insurance Corporation (FSLIC) and the Resolution Trust Corporation. The DIF and the FRF are maintained separately to carry out their respective mandates.

Recent Legislation
Helping Families Save Their Homes Act of 2009 (Public Law 111-22) was enacted on May 20, 2009. This legislation provides for: 1) extending the FDIC's deposit insurance coverage from $100,000 to $250,000 until 2013, 2) extending FDIC's authority to borrow from the Treasury in amounts necessary to carry out the increased insurance coverage, notwithstanding the amount limitations contained in Sections 14(a) and 15(c) of the FDI Act, 3) repealing the prohibition against the FDIC taking the increased insurance coverage into account for purposes of setting assessments, 4) extending the generally applicable time limit from 5 years to 8 years for an FDIC Restoration Plan to rebuild the reserve ratio of the DIF, 5) permanently increasing the FDIC's authority to borrow from the Treasury from $30 billion to $100 billion and, if necessary, up to $500 billion through 2010, and 6) allowing FDIC to charge systemic risk special assessments by rulemaking on both insured depository institutions and, with Treasury concurrence, depository institution holding companies.

The Emergency Economic Stabilization Act of 2008 (EESA), legislation to help stabilize the financial markets, was enacted on October 3, 2008. The legislation requires that Treasury consult with the FDIC and other federal agencies in the establishment of the troubled asset relief program (known as TARP).

Operations of the DIF
The primary purpose of the DIF is to: 1) insure the deposits and protect the depositors of DIFinsured institutions and 2) resolve DIF-insured failed institutions upon appointment of FDIC as receiver in a manner that will result in the least possible cost to the DIF (unless a systemic risk determination is made).

The DIF is primarily funded from deposit insurance assessments and interest earned on investments in U.S. Treasury obligations. Additional funding sources, if necessary, are borrowings from the Treasury, Federal Financing Bank (FFB), Federal Home Loan Banks, and insured depository institutions. The FDIC has borrowing authority of $100 billion from the Treasury, and if necessary, up to $500 billion through 2010. Additionally, FDIC has a Note Purchase Agreement with the FFB not to exceed $100 billion to enhance DIF's ability to fund deposit insurance obligations.

A statutory formula, known as the Maximum Obligation Limitation (MOL), limits the amount of obligations the DIF can incur to the sum of its cash, 90 percent of the fair market value of other assets, and the amount authorized to be borrowed from the Treasury. The MOL for the DIF was $118.2 billion and $69.0 billion as of December 31, 2009 and 2008, respectively. In connection with the temporary increase in the basic deposit insurance coverage limit from $100,000 to $250,000, the FDIC may borrow from the Treasury to carry out the increase in the maximum deposit insurance amount without regard to the MOL or the $100 billion limit.

Operations of Resolution Entities
The FDIC is responsible for managing and disposing of the assets of failed institutions in an orderly and efficient manner. The assets held by receiverships, pass-through conservatorships and bridge institutions (collectively, resolution entities), and the claims against them, are accounted for separately from DIF assets and liabilities to ensure that proceeds from these entities are distributed in accordance with applicable laws and regulations. Accordingly, income and expenses attributable to resolution entities are accounted for as transactions of those entities. All are billed by the FDIC for services provided on their behalf.

Last Updated 07/16/2010 communications@fdic.gov