Unrealized (loss)/gain on available-for-sale securities,
net (Note 4)
Fund Balance - Beginning
Fund Balance - Ending
The accompanying notes are an integral
part of these financial statements.
Federal Deposit Insurance Corporation
Savings Association Insurance
Fund Statements of Cash Flows for the Years Ended
Dollars in Thousands
Cash Flows From Operating Activities
Cash provided by:
Interest on U.S. Treasury obligations
Entrance and exit fees, including interest on exit fees
Recoveries from thrift resolutions
Recoveries from conversion of benefit plan
Cash used by:
Disbursements for thrift resolutions
Net Cash Provided by Operating Activities (Note 12)
Cash Flows From Investing Activities
Cash provided by:
Maturity of U.S. Treasury obligations, held-to-maturity
Maturity of U.S. Treasury obligations, available-for-sale
Cash used by:
Purchase of U.S. Treasury obligations, held-to-maturity
Purchase of U.S. Treasury obligations, available-for-sale
Net Cash Used by Investing Activities
Net (Decrease) Increase in Cash and Cash Equivalents
Cash and Cash Equivalents - Beginning
Unrestricted Cash and Cash Equivalents - Ending
Restricted Cash and Cash Equivalents - Ending
Cash and Cash Equivalents - Ending
The accompanying notes are an integral
part of these financial statements.
TO THE FINANCIAL STATEMENTS
December 31, 1999 and 1998
Legislative History and Operations of the Savings Association Insurance Fund
The Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA) was enacted to reform, recapitalize, and consolidate the
federal deposit insurance system. The FIRREA created the Savings Association Insurance
Fund (SAIF), the Bank Insurance Fund (BIF), and the FSLIC Resolution Fund (FRF). It also
designated the Federal Deposit Insurance Corporation (FDIC) as the administrator of these
funds. All three funds 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. The FRF is a resolution fund responsible for winding up the affairs of the
former Federal Savings and Loan Insurance Corporation (FSLIC) and liquidating the assets
and liabilities transferred from the former Resolution Trust Corporation (RTC).
Pursuant to the Resolution Trust Corporation
Completion Act of 1993 (RTC Completion Act), resolution responsibility transferred from
the RTC to the SAIF on July 1, 1995. Prior to that date, thrift resolutions were the
responsibility of the RTC (January 1, 1989 through June 30, 1995) or the FSLIC (prior to
Pursuant to FIRREA, an active institutions insurance fund membership and primary
federal supervisor are generally determined by the institutions 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. The Federal Deposit Insurance Act
(FDI Act), Section 5(d)(3), provides that 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. The FDI
Act, Section 5(d)(2)(G), allows SAIF-member thrifts to convert to a bank charter and
retain their SAIF membership. These institutions are referred to as Sasser financial
institutions. The Home Owners Loan Act (HOLA), Section 5(o), allows BIF-member banks
to convert to a thrift charter and retain their BIF membership. These institutions are
referred to as HOLA thrifts.
Other Significant Legislation
The Competitive Equality Banking Act of 1987 established the Financing Corporation
(FICO) as a mixed-ownership government corporation whose sole purpose was to function as a
financing vehicle for the FSLIC.
The Omnibus Budget Reconciliation Act of 1990 (1990 OBR Act) and the Federal Deposit
Insurance Corporation Improvement Act of 1991 (FDICIA) made changes to the FDICs
assessment authority (see Note 7) and borrowing authority.
The FDICIA also requires the FDIC to: 1) resolve failing institutions in a manner that
will result in the least possible cost to the deposit insurance funds and 2) maintain the
insurance funds at 1.25 percent of insured deposits or a higher percentage as
The Deposit Insurance Funds Act of 1996 (DIFA) was enacted to provide for: 1) the
capitalization of the SAIF to its designated reserve ratio (DRR) of 1.25 percent by means
of a one-time special assessment on SAIF-insured deposits; 2) the expansion of the
assessment base for payments of the interest on obligations issued by the FICO to include
all FDIC-insured thrifts and banks; 3) beginning January 1, 1997, the imposition of a FICO
assessment rate on SAIF-assessable deposits that is five times the rate for BIF-assessable
deposits through the earlier of December 31, 1999, or the date on which the last savings
association ceases to exist; 4) the payment of the annual FICO interest obligation of
approximately $790 million on a pro rata basis between thrifts and banks on the earlier of
January 1, 2000, or the date on which the last savings association ceases to exist; 5)
authorization of SAIF assessments only if needed to maintain the fund at the DRR; 6) the
refund of amounts in the SAIF in excess of the DRR with such refund not to exceed the
previous semiannual assessment; 7) assessment rates for SAIF members not lower than the
assessment rates for BIF members with comparable risk; and 8) the merger of the SAIF and
the BIF on January 1, 1999, if no insured depository institution is a savings association
on that date. As of December 31, 1999, Congress did not enact legislation to either merge
the SAIF and the BIF or to eliminate the thrift charter.
The DIFA required the establishment of a Special Reserve of the SAIF if, on January 1,
1999, the reserve ratio exceeded the DRR of 1.25 percent. The reserve ratio exceeded the
DRR by approximately 0.14 percent on January 1, 1999. As a result, $978 million was placed
in a Special Reserve of the SAIF and was administered by the FDIC. On November 12, 1999,
the Gramm-Leach-Bliley Act (GLBA), (Public Law 106-102), was enacted which eliminated the
SAIF Special Reserve.
The GLBA was enacted in order to modernize the financial services industry that
includes banks, brokerages, insurers, and other financial service providers. The GLBA
will, among other changes, lift restrictions on affiliations among banks, securities
firms, and insurance companies. It will also expand the financial activities permissible
for financial holding companies and insured depository institutions, their affiliates and
subsidiaries. The GLBA provides for a greater degree of functional regulation of
securities and insurance activities conducted by banks and their affiliates. The GLBA also
governs affiliations of thrifts that are in financial holding companies and provides for
functional regulation of such thrifts affiliates.
Congress continues to focus on legislative proposals that would affect the deposit
insurance funds. Some of these proposals, such as the merger of the SAIF and the BIF and
the rebate of the insurance funds, may have a significant impact on the SAIF and the BIF,
if enacted into law. However, these proposals continue to vary and FDIC management cannot
predict which provisions, if any, will ultimately be enacted.
Operations of the
The primary purpose of the SAIF is to: 1) insure the deposits and protect the
depositors of SAIF-insured institutions and 2) resolve failed SAIF-insured institutions
including managing and liquidating their assets. In this capacity, the SAIF has financial
responsibility for all SAIF-insured deposits held by SAIF-member institutions and by
BIF-member banks designated as Oakar financial institutions.
The SAIF is primarily funded from the following sources: 1) interest earned on
investments in U.S. Treasury obligations and 2) SAIF assessment premiums. Additional
funding sources are borrowings from the U.S. Treasury, the Federal Financing Bank (FFB),
and the Federal Home Loan Banks, if necessary. The 1990 OBR Act established the
FDICs authority to borrow working capital from the FFB on behalf of the SAIF and the
BIF. The FDICIA increased the FDICs authority to borrow for insurance losses from
the U.S. Treasury, on behalf of the SAIF and the BIF, from $5 billion to $30 billion. The
FDICIA also established a limitation on obligations that can be incurred by the SAIF,
known as the maximum obligation limitation (MOL). At December 31, 1999, the MOL for the
SAIF was $16.7 billion.
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 liquidation 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. Liquidation expenses paid by the SAIF on behalf of
the receiverships are recovered from those receiverships.
2. Summary of Significant Accounting
These financial statements pertain to the financial position,
results of operations, and cash flows of the SAIF and are presented in accordance with
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 or liquidating agent. Periodic and final accountability reports of the
FDICs activities as receiver or liquidating agent are furnished to courts,
supervisory authorities, and others as required.
Use of Estimates
FDIC 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.
Cash equivalents are short-term, highly liquid investments with original
maturities of three months or less. Cash equivalents primarily consist of Special U.S.
Investments in U.S.
Investments in U.S. Treasury obligations are recorded pursuant to the Statement
of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." SFAS No. 115 requires that securities be classified
in one of three categories: held-to-maturity, available-for-sale, or trading. 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. Securities designated as available-for-sale are shown at fair value with
unrealized gains and losses included in Comprehensive Income. Realized gains and losses
are included in the Statements 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. The SAIF does not designate any securities as
Allowance for Losses on Receivables from Thrift
The SAIF records a receivable for the amounts advanced and/or obligations
incurred for resolving failing and failed thrifts. Any related allowance for loss
represents the difference between the funds advanced and/or obligations incurred and the
expected repayment. The latter is based on estimates of discounted cash recoveries from
the assets of assisted or failed thrifts, net of all estimated liquidation costs.
Cost Allocations Among Funds
Operating expenses not directly charged to the funds are allocated to all funds
administered by the FDIC using workload-based-allocation percentages. These percentages
are developed during the annual corporate planning process and through supplemental
Postretirement Benefits Other Than Pensions
The FDIC established an entity to provide the accounting and administration of
postretirement benefits on behalf of the SAIF, the BIF, and the FRF. Each fund pays its
liabilities for these benefits directly to the entity. The SAIFs unfunded net
postretirement benefits liability is presented in the SAIFs Statements of Financial
Disclosure About Recent Accounting Standards
In February 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 132, "Employers Disclosures about Pensions and Other Postretirement
Benefits." The Statement standardizes the disclosure requirements for pensions and
other postretirement benefits to the extent practicable. Although changes in the
SAIFs disclosures for postretirement benefits have been made, the impact is not
Other recent pronouncements are not applicable to the financial statements.
The nature of related parties and a description of related party transactions
are disclosed throughout the financial statements and footnotes.
Reclassifications have been made in the 1998 financial statements to conform to
the presentation used in 1999.
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 FDICs 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 1999 and 1998 that resulted
in an exit fee to the SAIF.
As of December 31, 1999, the unamortized premium, net of unamortized discount,
was $6.0 million. As of December 31, 1998, the unamortized premium, net of the unamortized
discount, was $3.4 million.
Cash and Other Assets: Restricted for
SAIF-Member Exit Fees at December 31
Dollars in Thousands
and cash equivalents
in U.S. Treasury obligations, net
receivable on U.S. Treasury obligations
Treasury Obligations, Net at December 31, 1999 (Restricted for SAIF-Member Exit Fees)
Dollars in Thousands
Treasury Obligations, Net at December 31, 1998 (Restricted for SAIF-Member Exit Fees)
Cash received by the SAIF is invested
in U.S. Treasury obligations with maturities exceeding three months unless cash is needed
to meet the liquidity needs of the fund. The SAIFs current portfolio includes
securities classified as held-to-maturity and available-for-sale. The SAIF also invests in
Special U.S. Treasury Certificates that are included in the "Cash and cash
equivalents" line item.
In 1999, the FDIC purchased $935.7 million
(adjusted par value) of Treasury inflation-indexed securities (TIIS) for the SAIF. Unlike
a traditional Treasury security, the par value of a TIIS is indexed to and increases with
the Consumer Price Index (CPI). Hence, these securities provide a measure of protection
for the SAIF in the event of unanticipated inflation.
As of December 31, 1999 and 1998, the book value of Investment in U.S. Treasury
obligations, net is $10.0 billion and $9.1 billion, respectively. The book value is
computed by adding the amortized cost of the held-to-maturity securities to the market
value of the available-for-sale securities.
As of December 31, 1999, the unamortized
premium, net of unamortized discount, was $130.5 million. As of December 31, 1998, the
unamortized premium, net of the unamortized discount, was $152.5 million.
Treasury Obligations, Net at December 31, 1999 (Unrestricted)
Dollars in Thousands
Stated Yield at Purchase (a)
Unrealized Holding Gains
Less than one year
Total Investment in U.S. Treasury Obligations, Net
(a) For Treasury inflation-indexed
securities (TIIS), the yields in the above table include their stated real yields at
purchase, not their effective yields. Effective yields on TIIS would include the stated
real yield at purchase plus an inflation adjustment of 2.6%, which was the latest
year-over-year increase in the CPI as reported by the Bureau of Labor Statistics on
December 14, 1999. These effectiveyields are 6.47% and 6.71% for TIIS classified as
held-to-maturity and available-for-sale, respectively.
U.S. Treasury Obligations, Net at
December 31, 1998 (Unrestricted)
Dollars in Thousands
Stated Yield at Purchase
Less than one year
Less than one year
Investment in U.S. Treasury Obligations, Net
The thrift resolution process takes different
forms depending on the unique facts and circumstances surrounding each failing or failed
institution. Payments for institutions that fail are made to cover obligations to insured
depositors and represent claims by the SAIF against the receiverships assets. There
was one thrift failure in 1999 with assets at failure of $63 million and SAIF outlays of
$63 million, and no thrift failures in 1998.
As of December 31, 1999 and
1998, the FDIC, in its receivership capacity for SAIF-insured institutions, held assets
with a book value of $114.0 million and $46.1 million, respectively (including cash and
miscellaneous receivables of $104.0 million and $45.7 million at December 31, 1999, and
1998, respectively). These assets represent a significant source of repayment of the
SAIFs receivables from thrift resolutions. The estimated cash recoveries from the
management and disposition of these assets that are used to derive the allowance for
losses are based in part on a statistical sampling of receivership assets. The sample was
constructed to produce a statistically valid result. These estimated recoveries are
regularly evaluated, but remain subject to uncertainties because of potential changes in
economic conditions. These factors could cause the SAIFs and other claimants
actual recoveries to vary from the level currently estimated.
The SAIF records a contingent
liability and a loss provision for thrifts (including Oakar and Sasser financial
institutions) that are likely to fail, absent some favorable event such as obtaining
additional capital or merging, when the liability becomes probable and reasonably
The contingent liabilities for anticipated failure of insured institutions as of
December 31, 1999 and 1998, were $56 million and $31 million, respectively. The contingent
liability is derived in part from estimates of recoveries from the management and
disposition of the assets of these probable thrift failures. Therefore, these estimates
are subject to the same uncertainties as those affecting the SAIFs receivables from
thrift resolutions (see Note 5).
Consequently, this could affect the ultimate cost to the SAIF from probable failures.
There are other thrifts where the risk of failure is less certain, but still
considered reasonably possible. Should these thrifts fail, the SAIF could incur additional
estimated losses ranging from $1 million to $87 million.
The accuracy of these estimates will largely depend on future economic
conditions. The Board has the statutory authority to consider the contingent liability
from anticipated failures of insured institutions when setting assessment rates.
The SAIF is also subject to a potential loss from thrifts that may fail if they
are unable to become Year 2000 compliant in a timely manner. In May 1997, the federal
financial institution regulatory agencies developed a program to conduct uniform reviews
of all FDIC-insured institutions Year 2000 readiness. The program assessed the five
key phases of an institutions Year 2000 conversion efforts: 1) awareness, 2)
assessment, 3) renovation, 4) validation, and 5) implementation. The reviews classified
each institution as Satisfactory, Needs Improvement, or Unsatisfactory. Performance was
defined as Satisfactory when Year 2000 weaknesses were minor in nature and could be
readily corrected within the program management framework.
In order to assess exposure to the SAIF from Year 2000 potential failures, the
FDIC evaluated all information relevant to such an assessment, to include multiple Year
2000 on-site examination results, institution capital levels and supervisory examination
composite ratings, and other institution past and current financial characteristics. Based
on data updated through December 31, 1999, all SAIF-insured institutions have received a
Satisfactory rating. As a result of this assessment, we conclude that, as of December 31,
1999, there are no probable or reasonably possible losses to the SAIF from Year 2000
The SAIF records an estimated loss for unresolved
legal cases to the extent those losses are considered probable and reasonably estimable.
For 1999 and 1998, no legal cases were deemed probable in occurrence. The FDIC has
determined that losses from unresolved legal cases totaling $620 thousand are reasonably
The 1990 OBR Act removed caps on assessment rate
increases and authorized the FDIC to set assessment rates for SAIF members semiannually,
to be applied against a members average assessment base. The FDICIA: 1) required the
FDIC to implement a risk-based assessment system; 2) authorized the FDIC to increase
assessment rates for SAIF-member institutions as needed to ensure that funds are available
to satisfy the SAIFs obligations; 3) required the FDIC to build and maintain the
reserves in the insurance funds to 1.25 percent of insured deposits; and 4) authorized the
FDIC to increase assessment rates more frequently than semiannually and impose emergency
special assessments as necessary to ensure that funds are available to repay U.S. Treasury
The DIFA (see Note 1) provided, among other things, for the
capitalization of the SAIF to its DRR of 1.25 percent by means of a one-time special
assessment on SAIF-insured deposits. The SAIF achieved its required capitalization by
means of a $4.5 billion special assessment effective October 1, 1996. Since October 1996,
the SAIF has maintained a capitalization level at or higher than the DRR of 1.25 percent
of insured deposits. As of December 31, 1999, the capitalization level for the SAIF is
1.45 percent of estimated insured deposits.
The DIFA provided for the elimination of the mandatory minimum assessment
formerly provided for in the FDI Act. It also provided for the expansion of the assessment
base for payments of the interest on obligations issued by the FICO to include all
FDIC-insured institutions (including thrifts, banks, and Oakar and Sasser financial
institutions). It also made the FICO assessment separate from regular assessments,
effective on January 1, 1997.
The FICO assessment has no financial impact on the SAIF. The FICO assessment is
separate from the regular assessments and is imposed on thrifts and banks, not on the
insurance funds. The FDIC, as administrator of the SAIF and the BIF, is acting solely as a
collection agent for the FICO. During 1999 and 1998, $426 million and $446 million,
respectively, was collected from SAIF-member institutions and remitted to the FICO.
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, using a two-step process based first on
capital ratios and then on other relevant information. The assessment rate averaged
approximately 0.20 cents and 0.21 cents per $100 of assessable deposits for 1999 and 1998,
respectively. On November 8, 1999, 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 2000. The Board reviews premium rates semiannually.
8. Pension Benefits,
Savings Plans, and Accrued Annual Leave
Eligible FDIC employees (permanent
and term employees with appointments exceeding one year) are covered by either the Civil
Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS). The
CSRS is a defined benefit plan, which is offset with the Social Security System in certain
cases. Plan benefits are determined on the basis of years of creditable service and
compensation levels. The CSRS-covered employees also can contribute to the tax-deferred
Federal Thrift Savings Plan (TSP).
The FERS is a three-part plan
consisting of a basic defined benefit plan that provides benefits based on years of
creditable service and compensation levels, Social Security benefits, and the TSP.
Automatic and matching employer contributions to the TSP are provided up to specified
amounts under the FERS.
During 1998, there was an open season that allowed employees to switch from CSRS
to FERS. This did not have a material impact on SAIFs operating expenses for 1998.
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 (OPM).
Eligible FDIC employees also may participate in a FDIC-sponsored tax-deferred
401(k) savings plan with matching contributions. The SAIF pays its share of the
employers portion of all related costs.
The SAIFs pro rata share of the
Corporations liability to employees for accrued annual leave is approximately $4.4
million at both December 31, 1999 and 1998.
Pension Benefits and Savings Plans
Expenses for the Years Ended December 31
Dollars in Thousands
CSRS/FERS Disability Fund
Civil Service Retirement System
Federal Employees Retirement System (Basic Benefit)
2, 1998, the SAIFs obligation under SFAS No. 106, "Employers Accounting
for Postretirement Benefits Other Than Pensions," for postretirement health benefits
was reduced when over 6,500 FDIC employees enrolled in the Federal Employees Health
Benefits (FEHB) Program for their future health insurance coverage. The OPM assumed the
SAIFs obligation for postretirement health benefits for these employees at no
initial enrollment cost. In addition, legislation was passed that allowed the remaining
2,600 FDIC retirees and near-retirees (employees within five years of retirement) in the
FDIC health plan to also enroll in the FEHB Program for their future health insurance
coverage, beginning January 1, 1999. The OPM assumed the SAIFs obligation for
postretirement health benefits for retirees and near retirees for a fee of $3.7 million.
The OPM is now responsible for postretirement health benefits for all FDIC employees and
covered retirees. The FDIC will continue to be obligated for dental and life insurance
coverage for as long as the programs are offered and coverage is extended to retirees.
assumption of the health care obligation constituted both a settlement and a curtailment
as defined by SFAS No. 106. This conversion resulted in a gain of $5.5 million to the SAIF
Postretirement Benefits Other
Dollars in Thousands
Funded Status at December 31
Fair value of plan assets (a)
Less: Benefit obligation
Under Funded Status of the Plans
Accrued benefit liability recognized in the Statements of
Expenses and Cash Flows for the Period Ended December 31
Net periodic benefit cost
Weighted-Average Assumptions at December 31
Expected return on plan assets
Rate of compensation increase
(a) Invested in U.S. Treasury obligations.
dental coverage trend rates were assumed to be 7% per year, inclusive of general
inflation. Dental costs were assumed to be subject to an annual cap of $2,000.
The SAIFs allocated share of the FDICs lease commitments totals $17.5 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 FDICs
future lease commitments is based upon current relationships of the workloads among the
SAIF, the BIF, and the FRF. 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 $5.7 million and $4.8 million for the years ended
December 31, 1999 and 1998, respectively.
Dollars in Thousands
As of December 31, 1999, deposits
insured by the SAIF totaled approximately $711 billion. This would be the accounting loss
if all depository institutions were to fail and the acquired assets provided no recoveries.
Asset Putbacks Upon resolution of a failed
thrift, the assets are placed into receivership and may be sold to an acquirer under an
agreement that certain assets may be resold, or "putback," to the receivership.
The values and time limits for these assets to be putback are defined within each
agreement. It is possible that the SAIF could be called upon to fund the purchase of any
or all of the "unexpired putbacks" at any time prior to expiration. The
FDICs estimate of the volume of assets subject to repurchase under the existing
agreements is $40.1 million. The actual amount subject to repurchase should be
significantly lower because the estimate does not reflect subsequent collections on or
sales of assets kept by the acquirer. It also does not reflect any decrease due to acts by
the acquirers which might disqualify assets from repurchase eligibility. Repurchase
eligibility is determined by the FDIC when the acquirer initiates the asset putback
procedures. The FDIC projects that a total of $443 thousand in book value of assets will
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 Notes 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. This is due to their short maturities or comparisons with current interest rates.
As explained in Note 3, entrance and exit fees receivables are net of discounts calculated
using an interest rate comparable to U.S. Treasury Bill or Government bond/note rates at
the time the receivables are accrued.
net receivables from thrift resolutions primarily include the SAIFs 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 SAIFs 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.
The FDIC, as
administrator for the SAIF, conducted a corporate-wide effort to ensure that all FDIC
information systems were Year 2000 compliant. This meant that systems must accurately
process date and time data in calculations, comparisons, and sequences after December 31,
1999, and be able to correctly deal with leap-year calculations in 2000. An oversight
committee comprised of FDIC division management directed the Year 2000 effort.
The FDICs Division of Information
Resources Management (DIRM) led the Year 2000 effort, under the direction of the oversight
committee. The internal Year 2000 team used a structured approach and rigorous program
management as described in the U.S. General Accounting Offices (GAO) Year 2000
Computing Crisis: An Assessment Guide. This methodology consisted of five phases under the
overall umbrellas of Program and Project Management. The FDIC completed all of the
recommended GAO phases: Awareness, Assessment, Renovation, Validation, and Implementation.
As a precautionary measure, the FDIC developed a
Year 2000 Rollover Weekend Strategy to monitor the information systems during the
transition into the year 2000. Contingency plans were in place for mission-critical
application failures and for other systems. No major problems were anticipated due to the
extensive planning and validation that occurred (see Note 14).
Year 2000 Estimated
Year 2000 compliance expenses for the SAIF are
estimated at $6.5 million and $4.4 million at December 31, 1999 and 1998, respectively.
These expenses are reflected in the "Operating expenses" line of the SAIFs
Statements of Income and Fund Balance.
On January 1,
2000, all FDIC systems were operating normally as a result of a corporate-wide effort to
ensure that all FDIC information systems were Year 2000 compliant prior to December 31,
1999. No internal system failures have occurred and none are anticipated (see
Year 2000 Effect on
As of May 5, 2000, no thrifts had failed due to
Year 2000 related problems and none are anticipated. Refer to "Contingent Liabilities
for: Year 2000 Anticipated Failures" (see