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Report to Congressional Committees: 

United States Government Accountability Office: 
GAO: 

June 2010: 

Financial Audit: 

Federal Deposit Insurance Corporation Funds' 2009 and 2008 Financial 
Statements: 

GAO-10-705: 

GAO Highlights: 

Highlights of GAO-10-705, a report to congressional committees. 

Why GAO Did This Study: 

Created in 1933 to insure bank deposits and promote sound banking 
practices, the Federal Deposit Insurance Corporation (FDIC) plays an 
important role in maintaining public confidence in the nationís 
financial system. FDIC administers the Deposit Insurance Fund (DIF), 
which protects bank and savings deposits, and the Federal Savings and 
Loan Insurance Corporation (FSLIC) Resolution Fund (FRF), which was 
created to close out the business of the former FSLIC. 

Section 17 of the Federal Deposit Insurance Act, as amended, requires 
GAO to annually audit the financial statements of the DIF and the FRF. 
GAO is responsible for obtaining reasonable assurance about whether 
FDICís financial statements for the DIF and the FRF are presented 
fairly in all material respects, in conformity with U.S. generally 
accepted accounting principles, and whether FDIC maintained effective 
internal control over financial reporting, and for testing FDICís 
compliance with selected laws and regulations. 

In commenting on GAOís draft report, FDIC pointed out that the past 
year was unusually challenging and acknowledged the important role 
internal control plays in achieving its mission and goals. Further, 
FDIC stated that financial management remains a high priority and 
cited actions taken or underway to address the deficiencies GAO 
identified. 

What GAO Found: 

In GAOís opinion, FDIC fairly presented, in all material respects, the 
2009 and 2008 financial statements for the two funds it administersó
DIF and FRF. Because of a material weakness in internal control 
related to its process for estimating losses on loss-sharing 
agreements, in GAOís opinion, FDIC did not have effective internal 
control over financial reporting. GAO did not find any reportable 
instances of noncompliance with provisions of the laws and regulations 
it tested. 

The banking industry continued to face challenges in 2009 that 
negatively impacted the DIF. In 2009, the DIF recognized approximately 
$58 billion in estimated losses from 140 bank failures with combined 
assets of over $170 billion, and other insured institutions the 
banking regulators believe are likely to fail. FDIC identified 
additional risk that could result in up to approximately $24 billion 
in further estimated losses to the DIF should potentially vulnerable 
insured institutions ultimately fail. FDIC continues to evaluate the 
ongoing risks to affected institutions and the effect of such risks on 
the DIF. Actual losses, if any, will largely depend on future economic 
and market conditions and could differ materially from FDICís 
estimates. Between January 1 and June 14, 2010, 82 institutions failed. 

As of December 31, 2009, the DIF had a negative fund balance of $20.9 
billion, and it had a negative 0.39 percent ratio of reserves to 
insured deposits. FDIC took action during 2009 to maintain the DIFís 
ability to continue resolving troubled institutions by charging 
insured institutions both a special assessment and approximately 3 
years of regular assessments totaling about $46 billion paid in 
advance, and by increasing the use of loss-sharing agreements in its 
resolution strategy. In addition to DIFís existing resources, FDIC can 
borrow up to $100 billion through the Federal Financing Bank and up to 
$100 billion from the U.S. Treasury to carry out DIFís insurance 
functions, with the ability under certain circumstances to increase 
its Treasury borrowings to $500 billion through 2010. Consistent with 
the FDIC Reform Act of 2005 and subsequent legislation, FDIC adopted a 
plan to restore, within 8 years, the fundís reserves to the minimum 
ratio of 1.15 percent of insured deposits through increased premium 
assessments. 

During the 2009 audit, GAO identified errors in FDICís draft financial 
statements for DIF that resulted from a material weakness in FDICís 
internal controls over the estimation of DIFís losses from loss-
sharing agreements. Although FDIC subsequently corrected DIFís 
financial statements, GAO believes that there is a reasonable 
possibility that material misstatements could occur that would not be 
prevented or detected by FDICís controls. Additionally, GAO identified 
a significant deficiency in FDICís internal controls with respect to 
information systems security. GAO will be reporting separately to FDIC 
management on these matters and, as appropriate, other less 
significant matters involving FDICís internal controls, along with 
related recommendations. 

View [hyperlink, http://www.gao.gov/products/GAO-10-705] or key 
components. For more information, contact Steven J. Sebastian at (202) 
512-3406 or sebastians@gao.gov. 

[End of section] 

Contents: 

Transmittal Letter: 

Auditor's Report: 
Opinion on DIF's Financial Statements: Opinion on FRF's Financial 
Statements: Opinion on Internal Control:
Compliance with Laws and Regulations:
Objectives, Scope, and Methodology:
Material Weakness in Controls over Loss Share Estimation Process: 
Significant Deficiency over Information Systems: FDIC Comments and Our 
Evaluation: 

Deposit Insurance Fund's Financial Statements: Balance Sheet: 
Statement of Income and Fund Balance: Statement of Cash Flows: 
Notes to Financial Statements: 

FSLIC Resolution Fund's Financial Statements: Balance Sheet: 
Statement of Income and Accumulated Deficit: Statement of Cash Flows: 
Notes to Financial Statements: 

Appendix I: Comments from the Federal Deposit Insurance Corporation: 

Appendix II: GAO Contact and Staff Acknowledgments: 

Abbreviations: 

CFO: Chief Financial Officer: 

DIF: Deposit Insurance Fund: 

FDIC: Federal Deposit Insurance Corporation: 

FMFIA: Federal Managers' Financial Integrity Act: 

FRF: FSLIC Resolution Fund: 

FSLIC: Federal Savings and Loan Insurance Corporation: 

[End of section] 

United States Government Accountability Office: 

Washington, DC 20548: 

June 25, 2010: 

The Honorable Christopher Dodd: 
Chairman: 
The Honorable Richard Shelby: 
Ranking Member: 
Committee on Banking, Housing, and Urban Affairs: 
United States Senate: 

The Honorable Barney Frank: 
Chairman: 
The Honorable Spencer Bachus: 
Ranking Member: 
Committee on Financial Services: 
House of Representatives: 

This report presents the results of our audits of the financial 
statements of the Deposit Insurance Fund (DIF) and the FSLIC 
Resolution Fund (FRF) as of, and for the years ending December 31, 
2009, and 2008. These financial statements are the responsibility of 
the Federal Deposit Insurance Corporation (FDIC), the administrator of 
the two funds. 

This report contains our (1) unqualified opinions on the DIF's and the 
FRF's financial statements, (2) opinion that FDIC's internal control 
over financial reporting was not effective as of December 31, 2009, 
because of a material weakness in internal control related to its 
process for estimating losses on loss-sharing agreements, and (3) 
conclusion that we found no reportable compliance issues during 2009 
with provisions of laws and regulations we tested. The report also 
discusses other significant issues that we identified in performing 
our audits that we believe warrant the attention of FDIC management 
and users of the financial statements. 

FDIC's insured financial institutions continued to face significant 
challenges in 2009, which adversely impacted the DIF's financial 
position. In 2009, the DIF recognized approximately $58 billion in 
estimated losses from actual bank failures and for other insured 
institutions the banking regulators believe are likely to fail. In 
addition, FDIC identified additional risk that could result in up to 
approximately $24 billion in further estimated losses to the DIF 
should other potentially vulnerable insured institutions ultimately 
fail. 

At December 31, 2009, the DIF had a negative fund balance of $20.9 
billion, and its ratio of reserves to insured deposits was a negative 
0.39 percent. Consistent with the FDIC Reform Act of 2005, FDIC 
adopted a plan in September 2008 to restore the DIF's reserves to the 
minimum ratio of 1.15 percent of insured deposits through increased 
premium assessments within a 5-year period. The FDIC has since amended 
this plan twice, the latest of which was adopted in September 2009. 
The amended plan calls for the DIF's reserves to be replenished to the 
minimum reserve ratio within an 8-year period. 

We are sending copies of this report to the Chairman of the Board of 
Directors of FDIC, the Chairman of the FDIC Audit Committee, the 
Chairman of the Board of Governors of the Federal Reserve System, the 
Comptroller of the Currency, the Director of the Office of Thrift 
Supervision, the Secretary of the Treasury, the Director of the Office 
of Management and Budget, and other interested parties. In addition, 
this report will be available at no charge on GAO's Web site at 
[hyperlink, http://www.gao.gov]. 

If you have any questions concerning this report, please contact me at 
(202) 512-3406 or sebastians@gao.gov. Contact points for our Offices 
of Congressional Relations and Public Affairs may be found on the last 
page of this report. GAO staff who made key contributions to this 
report are listed in appendix II. 

Signed by: 

Steven J. Sebastian: 
Director: 
Financial Management and Assurance: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

To the Board of Directors: 
The Federal Deposit Insurance Corporation: 

In accordance with Section 17 of the Federal Deposit Insurance Act, as 
amended, we are responsible for conducting audits of the financial 
statements of the two funds administered by the Federal Deposit 
Insurance Corporation (FDIC). In our audits of the Deposit Insurance 
Fund's (DIF) and the FSLIC Resolution Fund's (FRF) financial 
statements for 2009 and 2008, we found: 

* the financial statements as of and for the years ended December 31, 
2009, and 2008, are presented fairly, in all material respects, in 
conformity with U.S. generally accepted accounting principles; 

* FDIC's internal control over financial reporting was not effective 
as of December 31, 2009 because of a material weakness in its process 
for estimating losses on loss-sharing agreements; and: 

* no reportable noncompliance with provisions of laws and regulations 
we tested. 

The following sections discuss in more detail (1) these conclusions; 
(2) our audit objectives, scope, and methodology; and (3) agency 
comments and our evaluation. 

Opinion on DIF's Financial Statements: 

The financial statements, including the accompanying notes, present 
fairly, in all material respects, in conformity with U.S. generally 
accepted accounting principles, DIF's assets, liabilities, and fund 
balance as of December 31, 2009, and 2008, and its income and fund 
balance and its cash flows for the years then ended. 

However, misstatements may nevertheless occur in other financial 
information reported by FDIC and not be detected as a result of the 
material weakness in internal control described in this report related 
to FDIC's process for estimating losses on loss-sharing agreements. 
[Footnote 1] 

As discussed in note 8 to DIF's financial statements, FDIC-insured 
financial institutions continued to face significant challenges in 
2009. The difficult economic and credit environment continued to 
challenge the soundness of many FDIC-insured institutions. In 2009, 
140 banks, with combined assets of over $170 billion, failed. The DIF 
recognized losses totaling an estimated $58 billion associated with 
these bank failures and other insured institutions the banking 
regulators have determined are likely to fail. Regulatory and market 
data suggest that the banking industry will continue to experience 
elevated levels of stress over the coming year. In addition to the 
losses reflected on the DIF's financial statements as of December 31, 
2009, FDIC has identified additional risk as of year-end 2009 that 
could result in further estimated losses to the DIF of up to 
approximately $24 billion should other potentially vulnerable insured 
institutions ultimately fail. FDIC continues to evaluate the ongoing 
risks to affected institutions in light of current economic and 
financial conditions, and the effect of such risks on the DIF. Actual 
losses, if any, will largely depend on future economic and market 
conditions and could differ materially from FDIC's estimates. As 
discussed in note 17 to DIF's financial statements, through June 14, 
2010, 82 institutions have failed during 2010. 

As of December 31, 2009, the DIF had a negative fund balance of $20.9 
billion, and its ratio of reserves to estimated insured deposits was a 
negative 0.39 percent. During 2009, the FDIC took action to maintain 
the DIF's ability to continue to resolve problem institutions. As 
discussed in note 9 to the DIF's financial statements, FDIC 
supplemented the DIF's cash resources by charging and collecting from 
FDIC-insured institutions a special assessment of $5.5 billion in 
September 2009. Additionally, on December 30, 2009, FDIC charged and 
collected from insured institutions approximately 3 years of 
assessments paid in advance --prepaid assessments --totaling about $46 
billion. These funds are included in the "Cash and cash equivalents" 
and "Unearned revenue --prepaid assessments" line items on DIF's 
balance sheet. Further, as discussed in notes 4 and 7 of DIF's 
financial statements, during 2009, FDIC expanded the use of purchase 
and assumption resolution transactions containing loss-sharing 
agreements with acquirers of failed institutions as a means of both 
conserving the initial cash outlay required by the DIF in resolving a 
troubled institution and as a longer-term means of attempting to 
further minimize the ultimate losses to the DIF. Under such 
agreements, which typically cover a 5-to 10-year period, an acquiring 
institution assumes all of the deposits and purchases most, if not 
all, of the assets of a failed institution. FDIC, in turn, agrees to 
cover a large percentage of any losses on assets covered under the 
agreements up to a stated threshold amount. During 2009, 90 of the 140 
institutions that failed and were resolved by FDIC were handled 
through the use of loss-sharing agreements with acquirers of these 
institutions. 

The DIF has other resources available to carry out its insurance 
responsibilities. At December 31, 2009, the DIF had $5.5 billion in 
investments in U.S. Treasury obligations in addition to $54 billion in 
cash and cash equivalents, which provide a ready source of funds to 
carry out its insurance activities. In addition, as discussed in note 
1 to DIF's financial statements, FDIC has a note agreement with the 
Federal Financing Bank enabling it to borrow up to $100 billion, and 
also has authority to borrow up to $100 billion and, in certain 
circumstances through 2010, up to $500 billion from the U.S. Treasury. 
FDIC may also borrow from Treasury, notwithstanding these amount 
limitations, any amount necessary to fund the temporary increase in 
deposit insurance coverage from $100,000 to $250,000. 

In accordance with the Federal Deposit Insurance Reform Act of 2005, 
FDIC adopted a restoration plan in October 2008 calling for an 
increase in the assessment rates charged to insured institutions to 
replenish the DIF's reserves to the minimum ratio of 1.15 percent of 
insured deposits within a 5-year period. The FDIC has since amended 
this plan twice--the latest amendment was adopted in September 2009. 
The amended restoration plan calls for the DIF's reserves to be 
replenished to the minimum reserve ratio of 1.15 percent of insured 
deposits within an 8-year period.[Footnote 2] 

The DIF also faces continued exposure from actions taken by the 
federal government in 2008 to avoid further adverse effects on the 
nation's economic condition and financial stability. Specifically, 
during 2008, the Department of the Treasury, in consultation with the 
President and upon recommendation of the Boards of the FDIC and the 
Federal Reserve, made "systemic risk" determinations under a provision 
of the Federal Deposit Insurance Corporation Improvement Act of 1991 
to counter identified systemwide crises in the nation's financial 
sector. As discussed in note 16 to DIF's financial statements, in 
response to systemic risk determinations in October 2008, FDIC 
established the Temporary Liquidity Guarantee Program (TLGP). The TLGP 
consists of a (1) Debt Guarantee Program, under which FDIC guarantees 
newly issued senior unsecured debt up to prescribed limits issued by 
insured institutions and certain holding companies, and (2) 
Transaction Account Guarantee Program, under which FDIC provides 
unlimited coverage for non-interest-bearing transaction accounts held 
by insured institutions. FDIC charges fees to participants that are to 
be used to cover any losses under both guarantee programs. As of 
December 31, 2009, the amount of debt guaranteed by FDIC under the 
Debt Guarantee Program was $309 billion, while FDIC's maximum exposure 
under the Transaction Account Guarantee Program was $834 billion, for 
total exposure under the TLGP of $1.14 trillion as of December 31, 
2009. As further discussed in note 16, a total of 525 institutions 
elected to exit the Transaction Account Guarantee Program after year-
end 2009. Consequently, at January 1, 2010, FDIC's maximum exposure 
under the Transaction Account Guarantee Program declined to $266 
billion, and its maximum exposure under the TLGP declined to $575 
billion. 

Opinion on FRF's Financial Statements: 

The financial statements, including the accompanying notes, present 
fairly, in all material respects, in conformity with U.S. generally 
accepted accounting principles, FRF's assets, liabilities, and 
resolution equity as of December 31, 2009, and 2008, and its income 
and accumulated deficit and its cash flows for the years then ended. 

Opinion on Internal Control: 

Because of the material weakness in internal control discussed below, 
FDIC did not maintain, in all material respects, effective internal 
control over financial reporting as of December 31, 2009, and thus did 
not provide reasonable assurance that material misstatements in 
relation to the financial statements would be prevented or detected 
and corrected on a timely basis. Our opinion is based on criteria 
established under 31 U.S.C. 3512 (c), (d), commonly known as the 
Federal Managers' Financial Integrity Act of 1982 (FMFIA). 

During our 2009 financial audit, we identified several control 
deficiencies over FDIC's process for deriving and reporting estimates 
of losses to the DIF from resolution transactions involving loss- 
sharing agreements. These deficiencies led to misstatements in the 
draft DIF financial statements which were ultimately corrected through 
adjustments to achieve fair presentation in the final financial 
statements. Although the net adjustments were ultimately not material 
to the DIF's financial statements, the nature of the control 
deficiencies we identified were such that a reasonable possibility 
existed that a material misstatement of the DIF's financial statements 
would not be prevented, or detected and corrected on a timely basis. 
Thus, these control deficiencies collectively represent a material 
weakness in FDIC's internal control over financial reporting. This 
material weakness is discussed in more detail later in this report. 

In FDIC's Management Report on Internal Control over Financial 
Reporting, which is presented in appendix I to this report, FDIC 
asserted that it did not maintain, in all material respects, effective 
internal control over financial reporting as of December 31, 2009, due 
to a material weakness related to its process for estimating losses on 
loss-sharing agreements. 

Despite its material weakness in internal control over financial 
reporting, FDIC was able to prepare financial statements that were 
fairly stated in all material respects for 2009 and 2008. However, the 
material weakness in internal control over financial reporting may 
adversely affect any decision by FDIC's management that is based, in 
whole or in part, on information that is inaccurate because of this 
weakness. In addition, unaudited financial information reported by 
FDIC may also contain misstatements resulting from this weakness. We 
considered the material weakness in determining the nature, timing, 
and extent of our audit procedures on the 2009 financial statements. 
We caution that misstatements may occur and not be detected by our 
tests and that such testing may not be sufficient for other purposes. 

In addition to the material weakness noted above and discussed later 
in this report, we identified a significant deficiency[Footnote 3] 
that, although not a material weakness, represents a combination of 
control deficiencies that, collectively, we believe should be brought 
to the attention of those charged with governance. This significant 
deficiency concerns the effectiveness of FDIC's security over 
information systems. This significant deficiency is discussed in more 
detail later in this report. 

We will be reporting additional details concerning the material 
weakness and the significant deficiency separately to FDIC management, 
along with recommendations for corrective actions. We also identified 
other deficiencies in FDIC's system of internal control which we do 
not consider to be material weaknesses or significant deficiencies but 
which merit FDIC management's attention and correction. We have 
communicated these matters to FDIC management and, as appropriate, 
will be reporting them in writing to FDIC separately, along with 
recommendations for corrective actions. 

Compliance with Laws and Regulations: 

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. 

Objectives, Scope, and Methodology: 

FDIC management is responsible for (1) preparing the annual financial 
statements in conformity with U.S. generally accepted accounting 
principles; (2) establishing and maintaining effective internal 
control over financial reporting and evaluating its effectiveness; and 
(3) complying with applicable laws and regulations. Management 
evaluated the effectiveness of FDIC's internal control over financial 
reporting as of December 31, 2009, based on criteria established under 
FMFIA. FDIC management provided an assertion concerning the 
effectiveness of its internal control over financial reporting (see 
appendix I). 

We are responsible for planning and performing the audit to obtain 
reasonable assurance and provide our opinion about whether (1) the 
financial statements are presented fairly, in all material respects, 
in conformity with U.S. generally accepted accounting principles, and 
(2) FDIC management maintained, in all material respects, effective 
internal control over financial reporting as of December 31, 2009. We 
are also responsible for testing compliance with selected provisions 
of laws and regulations that have a direct and material effect on the 
financial statements. 

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 FDIC management; 

* evaluated the overall presentation of the financial statements; 

* obtained an understanding of FDIC and its operations, including its 
internal control over financial reporting; 

* considered FDIC's process for evaluating and reporting on internal 
control over financial reporting based on criteria established under 
FMFIA; 

* assessed the risk that a material misstatement exists in the 
financial statements and the risk that a material weakness exists in 
internal control over financial reporting; 

* tested relevant internal control over financial reporting; 

* evaluated the design and operating effectiveness of internal control 
over financial reporting based on the assessed risk; 

* tested compliance with certain laws and regulations, including 
selected provisions of the Federal Deposit Insurance Act, as amended; 
and: 

* performed such other procedures as we considered necessary in the 
circumstances. 

An entity's internal control over financial reporting is a process 
effected by those charged with governance, management, and other 
personnel, the objectives of which are to provide reasonable assurance 
that (1) transactions are properly recorded, processed, and summarized 
to permit the preparation of financial statements in accordance with 
U.S. generally accepted accounting principles, and assets are 
safeguarded against loss from unauthorized acquisition, use, or 
disposition; and (2) transactions are executed in accordance with laws 
and regulations that could have a direct and material effect on the 
financial statements. 

We did not evaluate all internal controls relevant to operating 
objectives as broadly defined by FMFIA, such as controls relevant to 
preparing statistical reports and ensuring efficient operations. We 
limited our internal control testing to controls over financial 
reporting. Because of inherent limitations in internal control, 
internal control may not prevent or detect and correct misstatements 
due to error or fraud, losses, or noncompliance. We also caution that 
projecting any evaluation of effectiveness 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 policies 
and procedures 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 have a direct and material effect on the financial statements for 
the year ended December 31, 2009. 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 audit in accordance with U.S. generally accepted 
government auditing standards. We believe our audit provides a 
reasonable basis for our opinions and other conclusions. 

Material Weakness in Controls over Loss Share Estimation Process: 

During our 2009 audit, we identified deficiencies in controls over 
FDIC's process for deriving and reporting estimates of losses to the 
DIF from resolution transactions involving loss-sharing agreements. 
These deficiencies resulted in errors in the draft 2009 DIF financial 
statements provided to us that went undetected by FDIC and that 
necessitated adjustments in finalizing the financial statements. 
Although the net effect of these errors was ultimately not material in 
relation to the financial statements taken as a whole, the nature of 
the control deficiencies we identified that resulted in these errors 
occurring and going undetected is such that there is a reasonable 
possibility that they could have led to material misstatements to 
DIF's financial statements that would not have been timely detected 
and corrected. 

In 2009, FDIC began using whole bank purchase and assumption 
agreements with accompanying loss-sharing agreements as the primary 
means of resolving failed financial institutions. Under such an 
agreement, FDIC sells a failed institution to an acquirer with an 
agreement that the FDIC, through the DIF, will share in any losses the 
acquirer experiences in servicing and disposing of assets purchased 
and covered under the loss-sharing agreement.[Footnote 4] Typically, 
during 2009, loss-sharing agreements were structured such that FDIC 
assumed 80 percent of any such losses.[Footnote 5] Ninety of the 140 
resolutions of failed institutions were structured with such loss-
sharing agreements in 2009, compared to 3 such agreements entered into 
for 25 failed institutions resolved in 2008. For financial reporting 
purposes, FDIC reflected the cumulative estimate of the losses that 
will likely be incurred on these loss-sharing agreements in the line 
item "Receivables from resolutions, net" on the DIF's balance sheet, 
as a component of the $60 billion allowance for losses established 
against this line item at December 31, 2009.[Footnote 6] The FDIC's 
estimate of future payments (losses) under these loss-sharing 
agreements represented $22.2 billion (37 percent) of the total DIF 
allowance for losses as of December 31, 2009. 

As part of our audit, we reviewed the process by which FDIC developed 
and reported on its estimates of losses to the DIF from loss-sharing 
agreements for the 2009 financial statements. In reviewing and testing 
this process, we identified control deficiencies that led to 
computational errors in the calculations and reporting of the year-end 
loss estimates that went undetected by FDIC. Control deficiencies 
existed throughout the loss-share estimation process, including the 
development of the initial estimates, the oversight or review of the 
calculations, the documentation of significant assumptions used, and 
the reporting of the estimates as part of the allowance for losses 
against the Receivable from Resolutions on DIF's financial statements. 

In developing the initial loss estimates, although FDIC issued written 
guidance in February 2009 related to these calculations, we found that 
the methodology was inconsistently applied and that FDIC did not have 
adequate controls to reasonably assure that loss-sharing calculations 
were accurate. Specifically, we found differences in the formulas used 
by FDIC personnel in performing the calculations and differences in 
how certain types of assets were combined into consolidated asset 
categories.[Footnote 7] Additionally, FDIC asserted that a review 
process was in place by which a limited number of staff prepared the 
calculations and reviewed each other's work for accuracy. However, 
there was no documentary evidence that supervisory or independent 
review or monitoring was performed on the calculations developed by 
FDIC personnel. 

As a result of these control deficiencies, we identified significant 
error rates in FDIC's calculations of loss estimates that were not 
identified and corrected by FDIC through a review or monitoring 
process. Of 51 institutions with loss-sharing agreements in 2009 we 
sampled for testing, we found errors in the calculations of estimated 
losses for 9. After we apprised FDIC of these errors, management 
reviewed the computations for the remaining institutions with loss- 
sharing agreements and found another 16 institutions where the 
estimated loss calculations contained errors. In total, over 25 
percent of the 93 individual loss share estimates for 2009 contained 
errors. While many of the individual errors were not large, some were 
significant. For example, one error resulted in an estimate of loss 
for an institution that was twice the amount it should have been. 
These computational errors in the loss share amounts FDIC estimated it 
would have to pay out under loss-sharing agreements totaled $386 
million on an absolute value basis. Despite the large percentage of 
estimates with errors and the relatively high dollar impact of these 
errors, they were not detected by FDIC in the normal course of 
preparing the initial estimates, when updating the amounts for year-
end reporting, or in its process for preparing and reviewing the DIF's 
2009 financial statements. Once corrected, the computational errors 
lowered the loss-share cost estimates and resulted in a net increase 
to the "Receivables from resolutions" line item on the DIF's financial 
statements of about $270 million. The Standards for Internal Control 
in the Federal Government[Footnote 8] provide that control activities 
are to help ensure that all transactions are completely and accurately 
recorded. These standards also state that internal control should 
generally be designed to assure that ongoing monitoring occurs in the 
course of normal operations. 

In addition to the computational errors, we could find no 
documentation supporting the assumptions contained in the complex 
spreadsheets that FDIC used to calculate its 2009 loss estimates, nor 
did we identify documentation demonstrating management's review and 
approval of the assumptions contained in the spreadsheets.[Footnote 9] 
Because these assumptions can significantly affect the estimated 
losses under loss-sharing agreements, such evidence is critical to 
ensuring that management has reviewed and is in agreement with the 
underlying assumptions used in deriving these estimates. Similarly, we 
found no evidence that the data used in the program developed to 
assist in updating the loss estimates on loss-sharing agreements for 
financial reporting at December 31, 2009, was reviewed for accuracy. 
[Footnote 10] This greatly increases the risk that inaccurate or 
incomplete data is used in the year-end calculations for a significant 
estimate on the DIF's financial statements. The Standards for Internal 
Control in the Federal Government provide that internal control and 
all transactions and other significant events need to be clearly 
documented, and the documentation should be readily available for 
examination. The documentation should appear in management directives, 
administrative policies, or operating manuals. While we performed 
audit procedures on the assumptions and data accuracy, this weakness 
results in a risk of misstatements in FDIC's loss-sharing computations. 

Finally, our review of FDIC's financial reporting of the loss-share 
estimates through its Loan Loss Reserve process identified multiple 
additional errors that were not identified and corrected by FDIC's 
review or routine monitoring controls.[Footnote 11] After we apprised 
FDIC of these additional errors, management reviewed all of the 
spreadsheets used in this process--one for each failed institution 
receivership--to identify and correct errors and inconsistencies. In 
total, 13 of the 93 spreadsheets for institutions with loss-sharing 
agreements (14 percent) used in the calculation of DIF's year-end 
allowance for losses contained errors. These errors totaled $225 
million on an absolute value basis. When FDIC corrected these 
additional errors, it resulted in an increase to the loss-share cost 
estimates and a net decrease to the "Receivables from resolutions" 
line item on the DIF's financial statements totaling about $132 
million. 

The lack of effective controls over the estimation process and the 
reporting of those estimates resulted in misstatements in the initial 
draft of the DIF's 2009 financial statements, which FDIC corrected. In 
total, FDIC's initial 2009 financial reporting related to loss-share 
estimates contained gross errors of over $611 million. Because the 
errors included both those that increased and decreased individual 
loss estimates, the errors resulted in a $138 million net decrease in 
the allowance for losses and a corresponding net increase to the 
"Receivables from resolutions" line item that the FDIC made to correct 
the DIF's 2009 financial statements. 

In 2009, FDIC substantially expanded the use of loss-sharing 
agreements in its resolution strategy to both minimize the initial 
outlay of funds by the DIF in resolving failed institutions and to 
attempt to minimize the ultimate loss incurred by the DIF through 
working to keep the assets of failed institutions in the market. Given 
the significance of these types of transactions and their impact on 
DIF's financial statements, it is critical that FDIC establish 
effective controls to ensure that all steps in the estimation process 
are fully documented and that appropriate review and monitoring of key 
steps in the process, including all manual computations, assumptions 
used, and source input, are both performed and documented. In 2009, 
the controls over this highly manual process were not sufficient to 
ensure that the loss-share calculations were consistent and accurate, 
and that independent verification was performed to timely identify and 
correct errors that could impact the financial statements. While the 
actual net misstatements ultimately were not material to the year-end 
financial statements, due to the nature of the control deficiencies we 
identified, there is a reasonable possibility that a material 
misstatement of the DIF's financial statements could have occurred and 
not been detected and corrected absent the audit process. 
Consequently, we believe that the control deficiencies we identified 
in the process for deriving estimates under loss-sharing agreements 
collectively represented a material weakness in internal controls as 
of December 31, 2009. 

FDIC has developed a corrective action plan to address the control 
deficiencies we identified in its loss-share estimation process. This 
action plan outlines specific steps FDIC indicates it has or is in the 
process of implementing, along with targeted dates for completion of 
the actions. We will review the effectiveness of FDIC's corrective 
actions as part of our 2010 financial audits. As discussed earlier, we 
will also be reporting additional details concerning the material 
weakness over FDIC's process for estimating losses under loss-sharing 
agreements in a separate report, along with our recommendations for 
corrective actions. 

Significant Deficiency over Information Systems: 

As an integral part of our audits of the 2009 financial statements of 
the DIF and FRF, we reviewed FDIC's information system controls. 
Effective information system controls are essential to safeguarding 
financial and other critical data, protecting the integrity of 
computer application programs, securing networks, and ensuring 
continued computer operations in case of unexpected interruption. 
These controls include a corporatewide security management program, 
access controls, configuration management, segregation of duties, and 
contingency planning. They also include business process application 
controls. 

During our 2009 financial audits, we identified FDIC information 
system control deficiencies that increased the risk of unauthorized 
modification and disclosure of financial and other sensitive 
information, and disruption of critical operations. These control 
deficiencies, which collectively constitute a significant deficiency, 
reduced FDIC's ability to ensure that authorized users had only the 
access needed to perform their assigned duties, and that its systems 
were sufficiently protected from unauthorized access. This significant 
deficiency affects the confidentiality, integrity and availability of 
financial and other sensitive information processed, stored, and 
transmitted on FDIC's systems. Additionally, FDIC's controls to 
monitor the effectiveness of its information system controls were not 
fully effective. Examples of these deficiencies follow: 

* FDIC had not controlled access to computer systems and a business 
application in a manner that effectively limited individuals' access 
to only those functions and data necessary to perform their assigned 
duties. To accommodate system updates and growth, FDIC changed network 
configurations that resulted in the ability for users to obtain 
unauthorized access to network controls and control information. In 
another case, FDIC had granted users inappropriate and excessive 
access privileges to a business application supporting resolution and 
receivership activities. As a result, users could obtain inappropriate 
access to and potentially modify information processed through this 
application. 

* FDIC's policies and procedures governing the assignment, use, and 
monitoring of mainframe user identifications (IDs) intended to support 
technical assistance to business processes were not enforced. We found 
that audit logs showed a long-term, systemic pattern of questionable 
use of privileges that provided a limited number of system 
administrators full access to all data and programs on the mainframe. 
However, FDIC's review of audit logs did not identify and trigger 
corrective actions or management follow-up to determine if mainframe 
user IDs were being used to obtain inappropriate access. 

* FDIC did not appropriately configure certain key systems, 
potentially allowing the systems to be manipulated by internal users 
without detection. For example, powerful mainframe programs that, if 
misused, could expose all data and programs on the system to 
unauthorized internal user access were not configured in accordance 
with FDIC policy. This resulted in FDIC's inability to detect 
unauthorized changes to the programs. FDIC's security monitoring and 
configuration management controls had not identified this situation 
and FDIC was not aware of this configuration. 

* FDIC did not have policies and procedures in place to prevent users 
from having inappropriate or incompatible access to multiple 
applications. For example, FDIC did not have policies and procedures 
to identify and govern the assignment of access privileges to 
combinations of systems that create logical access to data that is 
otherwise prevented by applications. As a result, a combination of 
access privileges were assigned to individuals that allowed for the 
circumvention of an accounting application's access controls. 
Additionally, FDIC did not have technical controls in place to 
identify or prevent the assignment of such combinations of access 
privileges that expose the data associated with certain applications 
from access outside of the access controls implemented within the 
functions of those applications. As a result, individuals could 
inappropriately obtain access to data in certain applications. 

* FDIC made major changes to important accounting and system 
administration applications during 2009, but did not effectively test 
and verify that all system interfaces were properly configured for the 
new systems before placing them into production. We identified 
deficiencies in the interfaces of two applications that had not been 
detected by FDIC's pre-implementation testing and were not 
subsequently identified through FDIC's periodic monitoring activities. 
These deficiencies increased the risk of errors in data as it is 
transferred from one system to another. 

Several of the vulnerabilities we identified with respect to FDIC's 
security over its information systems should have been identified 
through FDIC's routine monitoring of access privileges, audit logs, 
and adherence to established policies and procedures. Although FDIC 
has an information security monitoring program, deficiencies existed 
which had not been identified by this program, some of which resulted 
in significant reductions in FDIC's capability to maintain effective 
controls. 

The Standards for Internal Control in the Federal Government[Footnote 
12] state that internal control should generally be designed to assure 
that ongoing monitoring occurs in the course of normal operations. 
Also, the Committee on Sponsoring Organizations of the Treadway 
Commission, in its Guidance on Monitoring Internal Control Systems, 
[Footnote 13] notes that ongoing and/or separate evaluations enable 
management to determine whether other components of internal control 
continue to function over time, and notes that organizations can 
select from a wide variety of monitoring procedures, including but not 
limited to continuous monitoring programs built into information 
systems and supervisory reviews of controls. In addition, the National 
Institute of Standards and Technology in its Recommended Security 
Controls for Federal Information Systems[Footnote 14] states that as 
part of a comprehensive continuous monitoring program, organizations 
should initiate specific actions to determine if there is a need to 
update the current security controls. 

The deficiencies we identified were the result of ineffective 
monitoring of systems, including a failure to detect noncompliance 
with published policies and procedures. While the deficiencies we 
identified represent internal exposures--that is, they could only be 
exploited internally by individuals with system knowledge--FDIC needs 
to consider the significant increase in its business activities, its 
establishment of new physical locations to conduct its work, and its 
substantial expansion of staffing levels including a large influx of 
contractors. These realities, in light of FDIC's increased resolution 
activities, create increased risk from internal threats that need to 
be fully considered in FDIC's risk management decisions. 

Based on the information system control deficiencies we identified, we 
conclude that, for 2009, FDIC's controls over information systems were 
not fully effective in preventing unauthorized access to data, systems 
configurations, or programs and did not provide management with 
sufficient capabilities to detect and respond to anomalous or 
unauthorized activity on internal networks and systems. 

FDIC Comments and Our Evaluation: 

In commenting on a draft of this report, FDIC's Chief Financial 
Officer (CFO) noted that he was pleased to receive unqualified 
opinions on the DIF's and FRF's 2009 and 2008 financial statements. 
The CFO pointed out that the past year was unusually challenging and 
stated that FDIC recognizes the significance that internal control 
plays in achieving its mission and goals. Further, the CFO stated that 
financial management remains a high priority. With respect to the 
internal control weaknesses we identified in FDIC's loss share 
estimation process and over its information systems, FDIC's CFO 
acknowledged that controls needed improvement, that such improvements 
are underway, and that our concerns should be resolved in 2010. We 
will evaluate the effectiveness of FDIC's corrective actions as part 
of our 2010 financial audits. 

The complete text of FDIC's comments, and its Management Report 
containing its assertion on the effectiveness of its internal control 
over financial reporting, are reprinted in appendix I. 

Signed by: 

Steven J. Sebastian: 
Director: 
Financial Management and Assurance: 

June 14, 2010: 

[End of section] 

Deposit Insurance Fund's Financial Statements: 

Balance Sheet: 

Deposit Insurance Fund: 

Federal Deposit Insurance Corporation: 

Deposit Insurance Fund Balance Sheet at December 31: 
Dollars in Thousands: 

Assets: 

Cash and cash equivalents - unrestricted: 
2009: $54,092,423; 
2008: $1,011,430. 

Cash and cash equivalents - restricted - systemic risk (Note 16): 
2009: $6,420,589; 
2008: $2,377,387. 

Investment in U.S. Treasury obligations, net: (Note 3): 
2009: $5,486,799; 
2008: $27,859,080. 

Assessments receivable, net (Note 9): 
2009: $280,510; 
2008: $1,018,486. 

Receivable - systemic risk (Note 16): 
2009: $3,298,819; 
2008: $1,238,132. 

Total preferred securities (Note 5): 
2009: $1,961,824; 
2008: $0. 

Interest receivable on investments and other assets, net: 
2009: $220,588; 
2008: $405,453. 

Receivables from resolutions, net (Note 4): 
2009: $38,408,622; 
2008: $15,765,465. 

Property and equipment, net (Note 5): 
2009: $388,817; 
2008: $368,761. 

Total Assets: 
2009: $110,568,991; 
2008: $49,944,194. 

Liabilities: 

Accounts payable and other liabilities: 
2009: $273,338; 
2008: $132,597. 

Unearned revenue - prepaid assessments (Note 9): 
2009: $42,727,101; 
2008: $0. 

Liabilities due to resolutions (Note 7): 
2009: $34,711,726; 
2008: $4,724,462. 

Deferred revenue - systemic risk (Note 16): 
2009: $7,847,447; 
2008: $2,077,880. 

Postretirement benefit liability (Note 13): 
2009: $144,952; 
2008: $114,124. 

Contingent liabilities for: Anticipated failure of insured 
institutions: (Note 8): 
2009: $44,014,258; 
2008: $23,981,204. 

Contingent liabilities for: Systemic risk (Note 16): 
2009: $1,411,966; 
2008: $1,437,638. 

Contingent liabilities for: Litigation losses: (Note 8): 
2009: $300,000; 
2008: $200,000. 

Total Liabilities: 
2009: $131,430,788; 
2008: $32,667,905. 

Commitments and off-balance-sheet exposure (Note 14): 

Fund Balance: 

Accumulated net income: 
2009: ($21,001,312); 
2008: $15,001,272. 

Unrealized gain on available-for-sale securities, net (Note 3): 
2009: $142,127; 
2008: $2,250,052. 

Unrealized postretirement benefit (Loss) Gain (Note 13): 
2009: ($2,612); 
2008: $24,965. 

Total Fund Balance: 
2009: ($20,861,797; 
2008: $17,276,289. 

Total Liabilities and Fund Balance: 
2009: $110,568,991; 
2008: $49,944,194. 

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

[End of statement] 

Statement of Income and Fund Balance: 

Deposit Insurance Fund: 

Federal Deposit Insurance Corporation: 

Deposit Insurance Fund Statement of Income and Fund Balance for the 
Years Ended December 31: 
Dollars in Thousands: 

Revenue: 

Interest on U.S. Treasury obligations: 
2009: $704,464; 
2008: $2,072,317. 

Assessments (Note 9): 
2009: $17,717,374; 
2008: $2,964,518. 

Systemic risk revenue (Note 16): 
2009: $1,721,626; 
2008: $1,463,537. 

Realized gain on sale of securities (Note 3): 
2009: $1,389,285; 
2008: $774,935. 

Other revenue (Note 10): 
2009: $3,173,611. 
2008: $31,017; 

Total Revenue: 
2009: $4,706,360; 
2008: $7,306,324. 

Expenses and Losses: 

Operating expenses (Note 11): 
2009: $1,271,099; 
2008: $1,033,490. 

Systemic risk expenses (Note 16): 
2009: $1,721,626; 
2008: $1,463,537. 

Provision for insurance losses (Note 12): 
2009: $57,711,772; 
2008: $41,838,835. 

Insurance and other expenses: 
2009: $4,447; 
2008: $3,693. 

Total Expenses and Losses: 
2009: $60,708,944; 
2008: $44,339,555. 

Net Loss: 
2009: ($36,002,584); 
2008: ($37,033,231). 

Unrealized (Loss) Gain on available-for-sale securities, net (Note 3): 
2009: ($2,107,925); 
2008: $1,891,144. 

Unrealized postretirement benefit (Loss) Gain (Note 13): 
2009: ($27,557); 
2008: $5,340. 

Comprehensive Loss: 
2009: ($38,138,086; 
2008: ($35,136,747). 

Fund Balance - Beginning: 
2009: $17,276,289; 
2008: $52,413,036. 

Fund Balance - Ending: 
2009: ($20,861,797); 
2008: $17,276,289. 

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

[End of statement] 

Statement of Cash Flows: 

Deposit Insurance Fund: 

Federal Deposit Insurance Corporation: 

Deposit Insurance Fund Statement of Cash Flows for the Years Ended 
December 31: 
Dollars in Thousands: 

Operating Activities: 

Net Loss: 
2009: ($36,002,584; 
2008: ($37,033,231). 

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

Amortization of U.S. Treasury obligations: 
2009: $210,905; 
2008: $457,289. 

Treasury inflation-protected securities (TIPS) inflation adjustment: 
2009: $10,387; 
2008: ($271,623). 

Gain on sale of U.S. Treasury obligations: 
2009: ($1,389,285); 
2008: ($774,935). 

Depreciation on property and equipment: 
2009: $70,488; 
2008: $55,434. 

Loss on retirement of property and equipment: 
2009: $924; 
2008: $447. 

Provision for insurance losses: 
2009: $57,711,772; 
2008: $41,838,835. 

Unrealized gain on postretirement benefits: 
2009: ($27,577); 
2008: $5,340. 

Guarantee termination fee from Citigroup: 
2009: ($1,961,824); 
2008: $0. 

Systemic risk expenses: 
2009: $0; 
2008: ($2,352). 

Change In Operating Assets and Liabilities: 

Decrease (Increase) in assessments receivable, net: 
2009: $737,976; 
2008: ($773,905). 

Decrease in interest receivable and other assets: 
2009: $192,750; 
2008: $402,225. 

(Increase) in receivables from resolutions: 
2009: ($60,229,760); 
2008: ($32,955,471). 

(Increase) in receivable - systemic risk: 
2009: ($2,160,688); 
2008: ($21,285). 

Increase (Decrease) in accounts payable and other liabilities: 
2009: $140,740 
2008: ($18,838). 

Increase (Decrease) in postretirement benefit liability: 
2009: $30,828; 
2008: ($2,034). 

Decrease in contingency liabilities - systemic risk: 
2009: ($25,672); 
2008: $0. 

Increase in liabilities due to resolutions: 
2009: $29,978,265); 
2008: $4,724,462. 

Increase in unearned revenue - prepaid assessments: 
2009: $42,727,101; 
2008: $0. 

Increase in deferred revenue - systemic risk: 
2009: $5,769,567; 
2008: $2,377,387. 

Net Cash (Used by) Provided by Operating Activities: 
2009: $35,793,763; 
2008: ($21,992,255). 

Investing Activities: 

Provided by: Maturity of U.S. Treasury obligations, held-to-maturity: 
2009: $0; 
2008: $3,304,350. 

Provided by: Maturity of U.S. Treasury obligations, available-for-sale: 
2009: $6,382,027; 
2008: $3,930,226. 

Provided by: Sale of U.S. Treasury obligations: 
2009: $15,049,873; 
2008: $13,974,732. 

Used by: Purchase of property and equipment: 
2009: ($91,468); 
2008: ($72,783). 

Net Cash Provided by Investing Activities: 
2009: $21,340,432; 
2008: $21,136,525. 

Net (Decrease) Increase in Cash and Cash Equivalents: 
2009: $57,134,195; 
2008: ($855,730). 

Cash and Cash Equivalents - Beginning: 
2009: $3,388,817; 
2008: $4,244,547. 

Unrestricted Cash and Cash Equivalents - Ending: 
2009: $54,092,423; 
2008: $1,011,430. 

Restricted Cash and Cash Equivalents - Ending: 
2009: $6,430,589; 
2008: $2,377,387. 

Cash and Cash Equivalents - Ending: 
2009: $60,523,012; 
2008: $3,388,817. 

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

[End of statement] 

Notes to the Financial Statements: 

Notes to the Financial Statements Deposit Insurance Fund: 
December 31, 2009 and 2008: 

1. Legislation and Operations of the Deposit 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 (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 two-thirds 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 l6). 

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 5100,000 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 530 billion to 5100 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 DIF-insured 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, arc 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. 

2. Summary of Significant Accounting Policies: 

General: 

These financial statements pertain to the financial position, results 
of operations, and cash flows of the DIF and are presented in 
accordance with U.S. generally accepted accounting principles (GAAP). 
As permitted by the Federal Accounting Standards Advisory Board's 
Statement of Federal Financial Accounting Standards 34, The Hierarchy 
of Generally Accepted Accounting Principles. Including the Application 
of Standards Issued by the Financial Accounting Standards Board, the 
FDIC prepares financial statements in conformity with standards 
promulgated by the Financial Accounting Standards Board (FASB). These 
statements do not include reporting for assets and liabilities of 
resolution entities because these entities are legally separate and 
distinct, and the DIF does not have any ownership interests in them. 
Periodic and final accountability reports of resolution entities are 
furnished to courts, supervisory authorities, and others upon request. 

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 - the assessments receivable and associated revenue; 
the allowance for loss on receivables from resolutions (including loss-
share agreements); the estimated losses for: anticipated failures, 
litigation, and representations and warranties; guarantee obligations 
for: the Temporary Liquidity Guarantee Program and debt of limited 
liability companies; valuation of trust preferred securities; and the 
postretirement benefit obligation. 

Cash Equivalents: 

Cash equivalents are short-term, highly liquid investments consisting 
primarily of U.S. Treasury Overnight Certificates. The majority of 
cash equivalents held by the DIF at December 31, 2009, resulted from 
the collection of $45.7 billion in prepaid assessments on December 30, 
2009 for all quarterly assessment periods through December 31, 2012 
(see Note 9). 

Investment in U.S. Treasury Obligations: 

D1F 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 Treasury must approve all such 
investments in excess of $100,000. The Secretary has granted approval 
to invest DIF 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. 

D1F's investments in U.S. Treasury obligations are classified as 
available-for-sale. Securities designated as available-for-sale are 
shown at fair value. Unrealized gains and losses are reported as other 
comprehensive income. Realized gains and losses arc included in the 
Statement of Income and Fund Balance as components of Net Income. 
Income on securities is calculated and recorded on a daily basis using 
the effective interest method. 

Revenue Recognition for Assessments: 

Assessment revenue is recognized for the quarterly period of insurance 
coverage based on an estimate. The estimate is derived from an 
institution's risk-based assessment rate and assessment base for the 
prior quarter adjusted for the current quarter's available assessment 
credits, any changes in supervisory examination and debt issuer 
ratings for larger institutions, and a modest deposit insurance growth 
factor. At the subsequent quarter-end, the estimated revenue amounts 
are adjusted when actual assessments for the covered period are 
determined for each institution. (See Note 9 for additional 
information on assessments.) 

Capital Assets and Depreciation: 

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 useful 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 useful life. 

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: 

Certain reclassifications have been made in the 2008 financial 
statements to conform to the presentation used in 2009. 

Disclosure about Recent Accounting Pronouncements: 

* FASB Accounting Standards Codification (ASC) 105, Generally Accepted 
Accounting Principles (formerly SFAS No. 168, The FASB Accounting 
Standards Codification and the Hierarchy of Generally Accepted 
Accounting Principles - a replacement of FASB Statement No, 162, 
issued in June 2009), became effective for financial statements 
coveting periods ending after September 15, 2009. On July 1, 2009, the 
FASB ASC was launched and became the sole source of authoritative 
accounting principles applicable to the FDIC. 

All existing standards that were used to create the Codification have 
become superseded. As a result, references to generally accepted 
accounting principles in these Notes will consist of the numbers used 
in the Codification and, if appropriate, the former pronouncement 
number. The Codification's purpose was not to create new accounting or 
reporting guidance, but to organize and simplify authoritative GAAP 
literature. 

Consequently, there will be no change to the DIF's financial 
statements due to the implementation of this Codification. 

* Statement of Financial Accounting Standards (SFAS) No. 167, 
Amendments to FASB Interpretation No. 46(R), was issued by the FASB in 
June 2009, and subsequently codified upon issuance of Accounting 
Standards Update No. 2009-17, Consolidations (ASC 810) - Improvements 
to Financial Reporting by Enterprises Involved with Variable Interest 
Entities. SFAS 167, effective for reporting periods beginning after 
November 15, 2009, modifies the former quantitative approach for 
determining the primary beneficiary of a variable interest entity 
(VIE) to a qualitative assessment. An enterprise must determine 
qualitatively whether it has (1) the power to direct the activities of 
the VIE that most significantly impact the entity's economic 
performance and (2) the obligation to absorb losses of the VIE or the 
right to receive benefits from the VIE that could potentially be 
significant to the VIE. If an enterprise has both of these 
characteristics, the enterprise is considered the primary beneficiary 
and must consolidate the VIE. Management is currently reviewing the 
possible impact, if any, of SFAS 167 (now codified in ASC 810) on 
DIF's accounting and financial reporting requirements for 2010. 

* SFAS No. 166, Accounting for Transfers of Financial Assets - an 
amendment of FASB Statement No. 140, was issued by the FASB in June 
2009. Subsequently, the FASB issued Accounting Standards Update No. 
2009-16, Transfers and Servicing (ASC 860) -Accounting for Transfers 
of Financial Assets, to formally incorporate the provisions of SFAS 
No. 166 into the Codification. SFAS 166 removes the concept of a 
qualifying special-purpose entity from GAAP, changes the requirements 
for derecognizing financial assets, and requires additional 
disclosures about a transferor's continuing involvement in transferred 
financial assets. The FASB's objective is to improve the information 
that a reporting entity provides in its financial statements about a 
transfer of financial assets; the effects of a transfer on its 
financial position, financial performance, and cash flows; and a 
transferor's continuing involvement, if any, in transferred financial 
assets. 

The provisions of SFAS 166 (now codified in ASC 860) become effective 
for the DIF for all transfers of financial assets occurring on or 
after January 1, 2010. 

* SFAS No. 165, Subsequent Events, was issued in May 2009 and 
subsequently codified in FASB ASC 855, Subsequent Events. ASC 855 
represents the inclusion of guidance on subsequent events in the 
accounting literature. Historically, management had relied on auditing 
literature for guidance on assessing and disclosing subsequent events. 
ASC 855 now requires the disclosure of the date through which an 
entity has evaluated subsequent events and the basis for that date - 
that is, whether that date represents the date the financial 
statements were issued or were available to be issued. These new 
provisions, effective for the DIF as of December 31, 2009, do not have 
a significant impact on the financial statements. 

* FASB Staff Position (FSP) FAS 115-2 and FAS 124-2, Recognition and 
Presentation of Other-Than-Temporary Impairments, was issued in April 
2009 and subsequently codified in FASB ASC 320, Investments-Debt and 
Equity Securities. It modifies the other-than-temporary impairment (OT 
TO guidance for debt securities. An OM is considered to have occurred 
if 1) an entity has the intent to sell an impaired security, 2) it is 
more likely than not that it will be required to sell the security 
before its anticipated recovery, or 3) an entity does not expect to 
recover the entire amortized cost basis when there is no intent or 
likely requirement to sell the security. 

In addition, the FSP requires that an OTTE loss should be recognized 
in earnings or other comprehensive income. If the entity has the 
intent to sell the security or it is more likely than not that it will 
be required to sell the security, the entire impairment (amortized 
cost basis over fair value) will be recognized in earnings. However, 
if an entity's management asserts that it does not have the intent to 
sell a debt security and it is more likely than not that it will not 
have to sell the security before recovery of its cost basis, then an 
entity must separate the impairment loss into two components: 1) the 
amount related to credit loss, which is recorded in earnings, and 2) 
the remainder of the impairment loss, which is recorded in other 
comprehensive income. The provisions of the FSP, now codified in ASC 
320, became effective for the DIF as of June 30, 2009. 

* Other recent accounting pronouncements have been deemed to be not 
applicable or material to the financial statements as presented. 

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

As of December 31, 2009 and 2008, investments in U.S. Treasury 
obligations, net, were $5.5 billion and $27.9 billion, respectively. 
As of December 31, 2009 and 2008, the DIF held $2.1 billion and $2.7 
billion, respectively, of Treasury inflation-protected securities 
(TIPS). These securities are indexed to increases or decreases in the 
Consumer Price Index for All Urban Consumers (CPI-U). 

For the year ended December 31, 2009, available-for-sale securities 
were sold for total proceeds of $15.2 billion. The gross realized 
gains on these sales totaled $1.4 billion. To determine gross realized 
gains, the cost of securities sold is based on specific 
identification. Net unrealized holding losses on available-for-sale 
securities of $2.1 billion are included in other comprehensive loss. 

Table: Total Investment in U.S. Treasure Obligations, Net at December 
31, 2009: 
Dollars in Thousands: 

Maturity: U.S. Treasury notes and bonds: Within 1 year; 
Yield at Purchase[A]: 5.04%; 
Face Value: $3,058,000; 
Net carrying amount: $3,062,038; 
Unrealized Holding Gains: $48,602; 
Unrealized Holding Losses: $0; 
Fair Value: $3,110,640. 

Maturity: U.S. Treasury notes and bonds: After 1 year through 5 years; 
Yield at Purchase[A]: 4.15%; 
Face Value: $300,000; 
Net carrying amount: $302,755; 
Unrealized Holding Gains: $11,648; 
Unrealized Holding Losses: $0; 
Fair Value: $314,403 

Maturity: U.S. Treasury inflation-protected securities After 1 year 
through 5 years; 
Yield at Purchase[A]: 3.14%; 
Face Value: $1,968,744; 
Net carrying amount: $1,979,879; 
Unrealized Holding Gains: $81,877; 
Unrealized Holding Losses: $0; 
Fair Value: $2,061,756. 

Maturity: Total; 
Face Value: $5,326,744
Net carrying amount: $5,344,672
Unrealized Holding Gains: $142,127
Unrealized Holding Losses: $0; 
Fair Value: $5,436,799. 

[A] for TIPS, the yields in the above table arc stated at their real 
yields at purchase, net their effective yields. Effective yields on 
TIPS include a long-term annual inflation assumption as measured by 
the CPI-U. The long-term CPI-U consensus forecast is 1.1 percent, 
based on figures issued by the Congressional Budget Office and Blue 
Chip Economy Indicators in early 2009. 

[End of table] 

Table: U.S. Treasury Obligations at December 31, 2008 (Dollars in 
Thousands): 

Maturity (a): U.S. Treasury notes and bonds: Within 1 year; 
Yield at Purchase (b): 4.25%; 
Face Value: $6,192,000; 
Net Carrying Amount: $6,350,921; 
Unrealized Holding Gains: $130,365; 
Unrealized Holding Losses (c): $0; 
Fair Value: $6,481,286. 

Maturity (a): U.S. Treasury notes and bonds: After 1 year through 5 
years; 
Yield at Purchase (b): 4.72%; 
Face Value: $9,503,000; 
Net Carrying Amount: $9,451,649; 
Unrealized Holding Gains: $1,030,931; 
Unrealized Holding Losses (c): $0; 
Fair Value: $10,482,580. 

Maturity (a): U.S. Treasury notes and bonds: After 5 years through 10 
years; 
Yield at Purchase (b): 4.79%; 
Face Value: $6,130,000; 
Net Carrying Amount: $7,090,289; 
Unrealized Holding Gains: $1,142,753; 
Unrealized Holding Losses (c): $0; 
Fair Value: $8,233,042. 

Maturity (a): U.S. Treasury inflation-protected securities: Within 1 
year; 
Yield at Purchase (b): 3.82%; 
Face Value: $726,550; 
Net Carrying Amount: $726,561; 
Unrealized Holding Gains: $0; 
Unrealized Holding Losses (c): ($5,627); 
Fair Value: $720,934. 

Maturity (a): U.S. Treasury inflation-protected securities: After 1 
year through 5 years; 
Yield at Purchase (b): 3.14%; 
Face Value: $1,973,057; 
Net Carrying Amount: $1,989,608; 
Unrealized Holding Gains: $0; 
Unrealized Holding Losses (c): ($48,370); 
Fair Value: $1,941,238. 

Maturity (a): Total Investment in U.S. Treasury Obligations, Net: 

Maturity (a): Total: 
Face Value: $24,524,607; 
Net Carrying Amount: $25,609,028; 
Unrealized Holding Gains: $2,304,049; 
Unrealized Holding Losses (c): ($53,997); 
Fair Value: $27,859,080. 

(a) 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. 

(b) For TIPS, the yields in the above table are stated at their real 
yields at purchase, not their effective yields. Effective yields on 
TIPS include a long-term annual inflation assumption as measured by the 
CPI-U. The long-term CPI-U consensus forecast is 2.2 percent, based on 
figures issued by the Congressional Budget Office and Blue Chip 
Economic Indicators in early 2008. 

(c) The unrealized losses on the U.S. Treasury inflation-protected 
securities (TIPS) is attributable to the two month delay in adjusting 
TIPS' principal for changes in the November and December Consumer Price 
Index for all Urban Consumers. As the losses occurred over a period 
less than a year and the December 31, 2008 unrealized losses converted 
to unrealized gains by February 28, 2009, the FDIC does not consider 
these securities to be other than temporarily impaired at December 31, 
2008. 

[End of table] 

4. Receivables From Resolutions, Net: 

Table: Receivables From Resolutions, Net at December 31 (Dollars in 
Thousands): 

Receivables from closed banks: 
2009: $98,647,508; 
2008: $27,389,467. 

Receivables from operating banks: 
2009: $0; 
2008: $9,406,278. 

Allowance for losses: 
2009: ($60,238,886); 
2008: ($21,030,280). 

Total: 
2009: $38,408,622; 
2008: $15,765,465. 

The receivables from resolutions include payments made by the DIF to 
cover obligations to insured depositors (subrogated claims), advances 
to resolution entities for working capital, and administrative 
expenses paid on behalf of resolution entities. Any related allowance 
for loss represents the difference between the funds advanced and/or 
obligations incurred and the expected repayment. Estimated future 
payments on losses incurred on assets sold to an acquiring institution 
under a loss-sharing agreement are factored into the computation of 
the expected repayment. Assets held by DIF resolution entities are the 
main source of repayment of the D1F's receivables from resolutions. 

As of December 31, 2009, there were 179 active receiverships which 
includes 140 established in 2009. As of December 31, 2009 and 2008, 
DIF resolution entities held assets with a book value of $49.3 billion 
and $45.8 billion, respectively (including cash, investments, and 
miscellaneous receivables of $7.7 billion and $5.1 billion, 
respectively). Ninety-nine percent of the current asset book value of 
$49.3 billion is held by resolution entities established in 2008 and 
2009. 

Estimated cash recoveries from the management and disposition of 
assets that are used to determine the allowance for losses were based 
on asset recovery rates from several sources including: actual or 
pending institution-specific asset disposition data; failed 
institution-specific asset valuation data; aggregate asset valuation 
data on several recently failed or troubled institutions; and 
empirical asset recovery data based on failures as far back as 1990. 
Methodologies for determining the asset recovery rates incorporate 
estimating future cash recoveries, net of applicable liquidation cost 
estimates, and discounting based on market-based risk factors 
applicable to a given asset's type and quality. The resulting 
estimated cash recoveries are then used to derive the allowance for 
loss on the receivables from these resolutions. 

For failed institutions resolved using a whole bank purchase and 
assumption transaction with an accompanying loss-share agreement, the 
projected future loss-share payments and monitoring costs on the 
covered assets sold to the acquiring institution under the agreement 
are considered in determining the allowance for loss on the 
receivables from these resolutions. The loss-share cost projections 
are based on the intrinsic value of the covered assets. The intrinsic 
value is determined using economic models that consider the quality 
and type of covered assets, current and future market conditions, risk 
factors and estimated asset holding periods. 

Estimated asset recoveries are regularly evaluated during the year, 
but remain subject to uncertainties because of potential changes in 
economic and market conditions. Continuing economic uncertainties 
could cause the D1F's actual recoveries to vary significantly from 
current estimates. 

Whole Bank Purchase and Assumption Transactions with Loss-sharing 
Agreements: 

The FDIC resolved 90 of the 140 failures in 2009 using a Whole Bank 
Purchase and Assumption resolution transaction with an accompanying 
Loss-Share Agreement on assets purchased by the acquirer. The 
acquiring institution assumes all of the deposits and purchases 
essentially all of the assets of a failed institution. The majority of 
the commercial and residential assets are purchased under a loss-share 
agreement, where the FDIC agrees to share in future losses experienced 
by the acquirer on those assets covered under the agreement. Loss-
share agreements are used by the FDIC to keep assets in the private 
sector and minimize disruptions to loan customers. 

Losses on the covered assets will be shared between the acquirer and 
the FDIC in its capacity as receiver of the failed institution when 
losses occur through the sale, foreclosure, loan modification, or the 
write-down of loans in accordance with the terms of the loss-share 
agreement. The agreement typically covers a 5 to 10 year period with 
the receiver covering 80 percent of the losses incurred by the 
acquirer up to a stated threshold amount (which varies by agreement) 
and the acquiring bank covering 20 percent. Any losses above the 
stated threshold amount will be reimbursed by the receiver at 95 
percent of the losses booked by the acquirer. The estimated liability 
for loss-sharing is accounted for by the receiver and is considered in 
the determination of the DIF's allowance for loss against the 
corporate receivable from the resolution. As loss-share claims are 
asserted and proven, DIF receiverships will satisfy these loss-share 
payments using available liquidation funds and/or amounts due from the 
DIF for funding the deposits assumed by the acquirer (see Note 7). 

Through December 31, 2009, 93 DIF receiverships are estimated to pay 
approximately $22.2 billion over the length of these loss-share 
agreements on approximately $126.4 billion in total covered assets at 
the inception date of these agreements. To date, 37 receiverships have 
made loss-share payments totaling $892.2 million. 

Financial instruments that potentially subject the DIF to 
concentrations of credit risk are receivables from resolutions. The 
repayment of DIF's receivables from resolutions is primarily 
influenced by recoveries on assets held by DIF receiverships and 
payments on the covered assets under loss-sharing agreements. The 
majority of the $165,5 billion in remaining assets in liquidation 
($41.4 billion) and current loss-share covered assets ($124.1 billion) 
are concentrated in commercial loans ($71.7 billion), residential 
loans ($70.3 billion), and securities ($14.7 billion). Most of the 
assets in these asset types originated from failed institutions 
located in California ($55.6 billion), Florida ($15.7 billion), 
Alabama ($15.6 billion), Texas (511.3 billion), and Illinois ($7.3 
billion). 

5. Trust Preferred Securities: 

On January 15, 2009, subject to a systemic risk determination, the 
Treasury, the FDIC and the Federal Reserve Bank of New York executed 
terms of a guarantee agreement with Citigroup to provide protection 
against the possibility of unusually large losses on an asset pool of 
approximately $301.0 billion of loans and securities backed by 
residential and commercial real estate and other such assets that 
would remain on the balance sheet of Citigroup. The term of the loss-
share guarantee was 10 years for residential assets and 5 years for 
non-residential assets. The FDIC exposure from this guarantee was 
capped at $10 billion. 

In consideration for its portion of the loss-share guarantee at 
inception, the FDIC received 3,025 shares of Citigroup's designated 
cumulative perpetual preferred stock (Series 0) with a liquidation 
preference at the time of $1,000,000 per share for a total of $3.025 
billion paying dividends at a rate of 8 percent annually. On July 30, 
2009, all shares of preferred stock initially received were exchanged 
for 3,025,000 of Citigroup Capital XXXIII trust preferred securities 
(TruPs) with a liquidation amount of $1,000 per security. The 
principal amount is due in 2039. The equivalent exchange of $3.025 
billion pays a quarterly distribution at a rate of 8 percent annually. 
The Treasury initially received $4.034 billion in preferred stock for 
its loss-share protection and received an equivalent, aggregate amount 
of $4.034 billion in trust preferred securities at the time of the 
exchange for TruPs. 

On December 23, 2009, Citigroup terminated the loss-sharing agreement 
citing improvements in its financial condition and in financial market 
stability. The FDIC incurred no loss from the guarantee prior to 
termination of the agreement. In connection with the early termination 
of the guarantee program, the Treasury and the FDIC agreed that 
Citigroup would reduce the combined $7.1 billion liquidation amount of 
the TruPs by $1.8 billion. Pursuant to an agreement between the 
Treasury and the FDIC, TruPs held by the Treasury were reduced by $1.8 
billion and the FDIC initially retained all TruPs holdings of $3.025 
billion. The FDIC will transfer an aggregate liquidation amount of 
$800 million in TruPs to the Treasury, plus any related interest, less 
any payments made or required to be made by the FDIC for guaranteed 
debt instruments issued by Citigroup or any of its affiliates under 
the Temporary Liquidity Guarantee Program (TLGP; see Note 16). This 
transfer will occur within 5 days of the date on which no Citigroup 
debt remains outstanding under the TLGP. The fair value of the TruPs 
and related interest are recorded as systemic risk assets described in 
Note 16. 

The remaining $2.225 billion (par value) of TruPs held by the FDIC are 
classified as available-for-sale debt securities in accordance with 
FASB ASC Topic 320, Investments ó Debt and Equity Securities. Upon 
termination of the guarantee agreement, the DIF recognized revenue of 
$1.962 billion for the fair value of the TruPs. (See Note 10, Other 
Revenue and Note 15, Disclosures About the Fair Value of Financial 
Instruments). 

6. Property and Equipment, Net: 

Property and Equipment, Net at December 31: 
Dollars in Thousands: 

Land: 
2009: $37,352; 
2008: $37,352. 

Buildings (including leasehold improvements): 
2009: $295,265; 
2008: $281,401. 

Application software (includes work-in-process): 
2009: $179,479; 
2008: $173,872. 

Furniture. Fixtures, and equipment: 
2009: $117,430; 
2008: $84,574. 

Accumulated depreciation: 
2009: ($240,709); 
2008: ($208,438). 

Total: 
2009: $388,817; 
2008: $368,761. 

The depreciation expense was $70 million and $55 million for 2009 and 
2008, respectively. 

7. Liabilities Due to Resolutions 

As of December 31, 2009, the DIF recorded liabilities totaling $34.7 
billion to resolution entities representing the agreed-upon value of 
assets transferred from the receiverships, at the time of failure, to 
the acquirers/bridge institutions for use in funding the deposits 
assumed by the acquirers/bridge institutions. Ninety-seven percent of 
these liabilities are due to failures resolved under a whole hank 
purchase and assumption transaction, most with an accompanying loss-
share agreement. The DIF satisfies these liabilities either by 
directly sending cash to the receiverships to fund loss-share and 
other expenses or by offsetting receivables from resolutions when a 
receivership declares a dividend. Inherent in these liabilities are 
$470 million in unreimbursed deposit claims subrogated by the DIF on 
behalf of the Temporary Liquidity Guarantee Program (see Note 16). 

In addition, there were $150 million in unpaid brokered deposit claims 
related to multiple receiverships. The DIF pays these liabilities when 
the claims are approved. 

8. Contingent Liabilities for: 

Anticipated Failure of Insured Institutions: 

The DIF records a contingent liability and a loss provision for DIF-
insured institutions that are likely to fail, absent some favorable 
event such as obtaining additional capital or merging, when the 
liability is 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. 

During the year, the conditions of the banking industry continued to 
deteriorate. The difficult economic and credit environment continued 
to challenge the soundness of many DIF-insured institutions. The 
ongoing weakness in housing and commercial real estate markets led to 
asset quality problems and volatility in financial markets, which hurt 
the banking industry performance and weakened many institutions with 
significant portfolios of residential and commercial mortgages. The 
impact of the economic deterioration in the banking industry caused a 
significant increase in the contingent loss reserve. As of December 
31, 2009 and 2008, the contingent liabilities for anticipated failure 
of insured institutions were $44.0 billion and $24.0 billion, 
respectively. 

In addition to these recorded contingent liabilities, the FDIC has 
identified risk in the financial services industry that could result 
in an additional loss to the DIF should potentially vulnerable insured 
institutions ultimately fail. As a result of these risks, the FDIC 
believes that it is reasonably possible that the DIF could incur 
additional estimated losses up to approximately $24 billion. The 
actual losses, if any, will largely depend on future economic and 
market conditions and could differ materially from this estimate. 

During 2009, 140 banks with combined assets of $171.2 billion failed. 
It is uncertain how long and how deep the current downturn will be. 
Supervisory and market data suggest that the banking industry will 
continue to experience elevated levels of stress over the coming year. 
The FDIC continues to evaluate the ongoing risks to affected 
institutions in light of the existing economic and financial 
conditions, and the extent to which such risks will continue to put 
stress on the resources of the insurance fund. 

Litigation Losses: 

The DIF records an estimated loss for unresolved legal cases to the 
extent that those losses are considered probable and reasonably 
estimable. The FDIC recorded probable litigation losses of $300 
million and $200 million for the DIF as of December 31, 2009 and 2008, 
respectively, and has determined that there are no reasonably possible 
losses from unresolved cases. 

Other Contingencies: 

Representations and Warranties: 

In an effort to maximize the return from the sale of assets from bank 
and thrift resolutions, FDIC as receiver offered representations and 
warranties, and guarantees on certain loan and servicing rights sales. 
Although these representations and warranties were offered by the 
receiver, DIF guaranteed the obligations under these agreements. In 
general, the guarantees, representations, and warranties relate to the 
completeness and accuracy of loan documentation, the quality of the 
underwriting standards used, the accuracy of the delinquency status, 
and the conformity of the loans with characteristics of the pool in 
which they were sold at the time of sale. 

As a result of loans and servicing rights sold in connection with the 
asset disposition of IndyMac Federal Bank, the unpaid principal 
balance for loans subject to representations and warranties increased 
by $184 billion to $195 billion as of December 31, 2009. Since the 
receiverships are the primary guarantors and they have sufficient 
funds to pay asserted claims, the DIF did not record contingent 
liabilities from any of the outstanding claims asserted in connection 
with representations and warranties at December 31, 2009 and 2008. 

In addition, until the contracts offering the representations and 
warranties and guarantees have expired, future losses could be 
incurred, some as late as 2032. Consequently. the FDIC believes it is 
possible that losses may be incurred by the DIF 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 DIF from outstanding contracts with 
unasserted representation and warranty claims. 

Purchase and Assumption Indemnification: 

In connection with Purchase and Assumption agreements for resolutions, 
the FDIC in its receivership capacity generally indemnifies the 
purchaser of a failed institution's assets and liabilities in the 
event a third party asserts a claim against the purchaser unrelated to 
the explicit assets purchased or liabilities assumed at the time of 
failure. The FDIC in its Corporate capacity is a secondary guarantor 
if and when a receiver is unable to pay. These indemnifications 
generally extend for a term of six years after the date of institution 
failure. The FDIC is unable to estimate the maximum potential 
liability for these types of guarantees as the agreements do not 
specify a maximum amount and any payments are dependent upon the 
outcome of future contingent events, the nature and likelihood of 
which cannot be determined at this time. During 2009 and 2008, the 
FDIC in its Corporate capacity has not made any indemnification 
payments under such agreements and no amount has been accrued in the 
accompanying financial statements with respect to these 
indemnification guarantees. 

FDIC Guaranteed Debt of Limited Liability Companies: 

During 2009, the FDIC in its corporate capacity offered guarantees on 
loans issued by newly-formed limited liability companies (LLCs) that 
were created to dispose of certain residential mortgage loans, 
construction loans, and other assets of two receiverships. The 
receiverships transferred a portfolio of assets with an unpaid 
principal balance of $5.8 billion to the LLCs. Private investors 
purchased a 40 ó 50 percent ownership interest in the LLCs for $615 
million in cash and the LLCs issued notes of $2.1 billion to the 
receiverships to partially fund the purchase of the assets. The 
receiverships hold the remaining 50 - 60 percent equity interest in 
the LLCs. In exchange for the guarantees, the DIF expects to receive 
estimated fees totaling $71.4 million, which equals one percent per 
annum over the estimated life of the notes. 

The term of the guarantees extends until the earliest of 1) payment in 
full of the notes or 2) two years following the maturity date of the 
notes (12 years). In the event of note payment default by an LLC, the 
FDIC in its corporate capacity can take one or more of the following 
remedies: 1) accelerate the payment of the unpaid principal amount of 
the notes; 2) sell the assets held as collateral; and 3) foreclose on 
the equity interests of the debtor. 

The DIF has recorded a receivable for the estimated guarantee fees of 
$71.4 million and an offsetting deferred revenue liability, included 
in the "Interest receivable on investments and other assets, net" and 
"Accounts payable and other liabilities" line items, respectively. 
Guarantee fees are recognized as revenue on a straight-line basis over 
the term of the notes. 

The source of payment for the LLC-issued debt is the collections from 
the LLC assets. If cash flow collections from the LLC assets are 
insufficient to cover the payments on the notes in accordance with 
priority of payments, then the FDIC as guarantor is required to make a 
guarantee payment for any shortfall. The estimated loss of the 
guarantees to the DIF is based on the discounted present value of the 
expected guarantee payments by the FDIC, reimbursements to the FDIC 
for guarantee payments, and guarantee fee collections. Under both a 
base case and a more stressful modeling scenario, the cash flows from 
the LLC assets provide sufficient coverage to fully pay the debts by 
their maturity dates. Therefore, the estimated loss to the D1F from 
these guarantees is zero. 

As of December 31, 2009, the maximum estimated guarantee exposure 
equals the total outstanding debt of $2.1 billion. 

9. Assessments: 

The FDI Act, as amended, requires a risk-based assessment system. The 
Act allows the FDIC discretion in defining risk and, by regulation, 
the FDIC has established several assessment risk categories based upon 
supervisory and capital evaluations. On March 4, 2009, the Board 
issued a final rule on Assessments to: 1) make it fairer and more 
sensitive to risk, 2) improve the way the risk-based assessment system 
differentiates risk among insured institutions, and 3) increase 
deposit insurance assessment rates to raise assessment revenue to help 
meet the requirements of the Restoration Plan. The assessment rate 
averaged approximately 23.32 cents and 4.18 cents per $100 of the 
assessment base, as defined in part 327.5(b) of FDIC Rules and 
Regulations, for 2009 and 2008, respectively. (The assessment rate 
would have been 16.19 cents if the special assessment imposed on June 
30, 2009 was excluded from the 2009 assessment income.) 

In compliance with provisions of the FDI Act, as amended, and 
implementing regulations, the FDIC is required to: 

* annually establish and publish a designated reserve ratio (DRR) 
within the statutory range from 1.15 to 1.50 percent of estimated 
insured deposits. As of December 31, 2009, the DIF reserve ratio was 
(0.39) percent of estimated insured deposits and the FDIC has set the 
DRR at 1.25 percent for 2010; 

* adopt a DIF restoration plan to return the reserve ratio to 1.15 
percent generally within eight years, if the reserve ratio fails below 
1.15 percent or is expected to fall below 1.15 percent within six 
months (see paragraph titled, Amended Restoration Plan). 

* annually determine if a dividend should be paid, based on the 
statutory requirement generally to declare dividends for one-half of 
the amount between 1.35 and 1.50 percent and all amounts exceeding 
1.50 percent. 

Assessment Revenue: 

During 2009, the FDIC implemented actions to supplement DIF's revenue 
through a special assessment and liquidity through prepaid assessments 
from insured depository institutions: 

* On May 22, 2009, the FDIC adopted a final rule imposing a 5 basis 
point special assessment on each insured depository institution's 
total assets minus Tier 1 capital as reported in its report of 
condition as of June 30, 2009. The special assessment of $5.5 billion 
was collected on September 30, 2009, at the same time the regular 
quarterly risk-based assessment for the second quarter 2009 was 
collected. 

* On November 17, 2009, the FDIC issued a Final Rule, Prepaid 
Assessments, to address the DIF's liquidity needs to pay for projected 
near-term failures and to ensure that the deposit insurance system 
remains industry-funded. Pursuant to the Rule, on December 30, 2009, a 
majority of insured depository institutions prepaid estimated 
quarterly risk-based assessments of $45.7 billion for the period 
October 2009 through December 2012. The prepaid amount was based on 
maintaining assessment rates at their current levels through the end 
of 2010 and adopting a uniform 3 basis point increase in assessment 
rates effective January 1, 2011. An institution's quarterly risk-based 
deposit insurance assessments thereafter will be offset by the amount 
prepaid until that amount is exhausted or until June 30, 2013, when 
any amount remaining would be returned to the institution. 

Prepaid assessments were mandatory for all institutions, but the FDIC 
exercised its discretion as supervisor and insurer to exempt an 
institution from the prepayment requirement if the FDIC determined 
that the prepayment would adversely affect the safety and soundness of 
the institution. In addition, institutions were allowed to request 
exemption from payment under certain circumstances. 

For those institutions that prepaid assessments, the DIF recognized 
revenue of $3.0 billion for the fourth quarter insurance period. The 
remaining prepaid amount of $42.7 billion is included in the "Unearned 
revenue ó prepaid assessments" line item on the Balance Sheet. For 
those institutions that did not prepay assessments, the "Assessments 
Receivable, net" line item of $281 million represents the estimated 
gross premiums due from insured depository institutions for the fourth 
quarter of the year. The actual deposit insurance assessments for the 
fourth quarter was billed and collected at the end of the first 
quarter of 2010. During 2009 and 2008, $17.7 billion and $3.0 billion, 
respectively, were recognized as assessment revenue from institutions. 

The FDI Act, as amended, granted a one-time assessment credit of 
approximately 54.7 billion to certain eligible insured depository 
institutions (or their successors) based on the assessment base of the 
institution as of December 31, 1996, as compared to the combined 
aggregate assessment base of all eligible institutions. Of the credits 
granted, $2.7 million remained as of December 31, 2009. 

Amended Restoration Plan: 

A Federal Register notice for Amendment of FDIC Restoration Plan was 
issued on October 2, 2009, amending DIF's Restoration Plan which was 
originally adopted on October 7, 2008 and subsequently amended on 
February 27, 2009. The Amended Restoration Plan addresses the need to 
return the DIF to its mandated minimum reserve ratio of 1.15 percent 
of estimated insured deposits. The Restoration Plan provided for the 
following: 1) the period of the Plan was extended to eight years; 2) 
current assessment rates will be maintained through December 31, 2010, 
with a uniform increase in risk-based assessment rates of 3 basis 
points effective January 1, 2011; and 3) at least semi-annually 
hereafter, the FDIC will update its loss and income projections for 
the Fund and, if necessary, will increase assessment rates prior to 
the end of the eight-year period, to return the reserve ratio to 1.15 
percent. 

Assessments Related to FICO: 

Assessments continue to be 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 former 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 DIF and is separate 
from deposit insurance assessments. The FDIC, as administrator of the 
DIF, acts solely as a collection agent for the FICO. During 2009 and 
2008, approximately $784 million and $791 million, respectively, was 
collected and remitted to the FICO. 

10. Other Revenue: 

Other Revenue for the Years Ended December 31: 
Dollars in Thousands: 

Guarantee termination fees: 
2009: $2,053,825; 
2008: $0. 

Debt guarantee surcharges: 
2009: $871,746; 
2008: $0. 

Dividends and interest on Citigroup trust preferred securities: 
2009: $231,227; 
2008: $0. 

Other: 
2009: $16,813; 
2008: $31,017. 

Total: 
2009: $3,173,611; 
2008: $31,017. 

Guarantee Termination Fees: 

Bank of America: 

In January 2009, the FDIC, Treasury, and the Federal Reserve Bank of 
New York (federal parties) signed a Summary of Terms (Term Sheet) with 
Bank of America to guarantee or lend against a pool of up to $118.0 
billion of financial instruments consisting of securities backed by 
residential and commercial real estate loans and corporate debt and 
related derivatives. In May 2009, prior to completing definitive 
documentation, Bank of America notified the federal parties of its 
desire to terminate negotiations with respect to the guarantee 
contemplated in the Term Sheet. All parties agreed that Bank of 
America received value for entering into the Term Sheet and that the 
federal parties should be compensated for out-of-pocket expenses and a 
fee equal to the amount Bank of America would have paid for the 
guarantee from the date of the signing of the Term Sheet through the 
termination date. Under the terms of the settlement, the federal 
parties received a total of $425 million. Of this amount, the FDIC 
received and recognized revenue of $92 million for the DIF. No losses 
were borne by the FDIC prior to the settlement. 

Citigroup: 

In connection with the termination of the loss-share agreement with 
Citigroup, the DIF recognized revenue of $1.962 billion for the fair 
value of the trust preferred securities received as consideration for 
the guarantee as agreed to in the termination and recorded $231 
million in dividends and interest from Citigroup (see Note 5). 

Surcharges on FDIC-Guaranteed Debt: 

On June 3. 2009, the FDIC published a final rule in the Federal 
Register amending the Temporary Liquidity Guarantee Program (TLGP) to 
provide a limited extension of the Debt Guarantee Program (DGP) for 
insured depository institutions and other participating entities (see 
Note 16). The amendment also imposed surcharges on FDIC-guaranteed 
debt issued after March 31, 2009, with a maturity of one year or more. 
The DGP extensions, coupled with the surcharges, were designed to 
facilitate an orderly transition period for all participants to return 
to the non-guaranteed debt market and to reduce the potential for 
market disruptions at the end of the program. Unlike other TLGP fees, 
which arc reserved for projected TLGP losses, the amount of surcharges 
collected were deposited into the DIF. During 2009, the DIF collected 
surcharges in the amount of $872 million. 

11. Operating Expenses: 

Operating expenses were $1.3 billion for 2009, compared to SI billion 
for 2008. The chart below lists the major components of operating 
expenses. 

Operating Expenses for the Years Ended December 31: 
Dollars in Thousands: 

Salaries and benefits: 
2009: $901,836; 
2008: $702,040. 

Outside services: 
2009: $244,479; 
2008: $159,170. 

Travel: 
2009: $97,744; 
2008: $67,592. 

Buildings and leased space: 
2009: $65,286; 
2008: $53,630. 

Software/Hardware maintenance: 
2009: $40,678; 
2008: $29,312. 

Depreciation of property and equipment: 
2009: $70,488; 
2008: $55,434. 

Other: 
2009: $37,563; 
2008: $32,198. 

Services reimbursed by TLGP: 
2009: $(3,613); 
2008: $(2,352). 

Services billed to resolution entities: 
2009: ($183,362); 
2008: ($63,534). 

Total: 
2009: $1,271,099; 
2008: $1,033,490. 

12. Provision for Insurance Losses: 

Provision for insurance losses was $57.7 billion for 2009 and $41.8 
billion for 2008. The following chart lists the major components of 
the provision for insurance losses. 

Provision for Insurance tosses for the Years Ended December 31: 
Dollars in Thousands: 

Valuation Adjustments: 

Closed banks and thrifts: 
2009: $37,586,603; 
2008: $17,974,530. 

Other assets: 
2009: ($7,885); 
2008: $7,377. 

Total Valuation Adjustments: 
2009: $37,578,718; 
2008: $17,981,907. 

Contingent Liabilities Adjustments: 
		
Anticipated failure of insured institutions: 
2009: $20,033,054; 
2008: $23,856,928. 

Litigation: 
2009: $100,000; 
2008: $0. 

Total Contingent Liabilities Adjustments: 
2009: $20,133,054; 
2008: $23,856,928. 

Total: 
2009: $41,838,835; 
2008: $711,772. 

13. Employee Benefits: 

Pension Benefits and Savings Plans: 

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 DIF 
contributes a portion of pension benefits for eligible employees, it 
does not account for the assets of either retirement system. The DIF 
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 up to five 
percent. Under the Federal Thrill Savings Plan (TSP), the FDIC 
provides FERS employees with an automatic contribution of 1 percent of 
pay and an additional matching contribution up to 4 percent of pay. 
CSRS employees also can contribute to the TSP. However, CSRS employees 
do not receive agency matching contributions. 

Pension Benefits and Savings Plans Expenses for the Years Ended 
December 31: 
Dollars in Thousands: 

Civil Service Retirement System: 
2009: $6,401; 
2008: $6,204. 

Federal Employees Retirement System (Basic Benefit): 
2009: $56,451; 
2008: $44,073. 

FDIC Savings Plan: 
2009: $25,449; 
2008: $21,756. 

Federal Thrift Savings Plan: 
2009: $20,503: 
2008: $16,659 

Total: 
2009: $108,804: 
2008: $88,722. 

Postretirement Benefits Other Than Pensions: 

The DIF has no postretiremcnt health insurance liability, since all 
eligible retirees are covered by the Federal Employees Health Benefit 
(FEHB) program. FEHB is administered and accounted for by the OPM. In 
addition, OPM pays the employer share of the retiree's health 
insurance premiums. 

The FDIC provides certain life and dental insurance coverage for its 
eligible retirees, the retirees' beneficiaries, and covered 
dependents. Retirees eligible for life and dental insurance coverage 
are those who have qualified due to: I) 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. For the dental coverage, 
retirees are responsible for a portion of the dental premium. 

The FDIC has elected not to fund the postretirement life and dental 
benefit liabilities. As a result, the DIF recognized the underfunded 
status (difference between the accumulated postretirement benefit 
obligation and the plan assets at fair value) as a liability. Since 
there are no plan assets, the plan's benefit liability is equal to the 
accumulated postretirement benefit obligation. At December 31, 2009 
and 2008, the liability was $145.0 million and $114.1 million, 
respectively, which is recognized in the "Postretirement benefit 
liability" line item on the Balance Sheet. The cumulative actuarial 
gains/losses (changes in assumptions and plan experience) and prior 
service costs/credits (changes to plan provisions that increase or 
decrease benefits) were ($2.6) million and $25.0 million at December 
31, 2009 and 2008, respectively. These amounts are reported as 
accumulated other comprehensive income in the "Unrealized 
postretirement benefit (loss) gain" line item on the Balance Sheet. 

The DIF's expenses for postretirement benefits for 2009 and 2008 were 
$7.7 million each year, which are included in the current and prior 
year's operating expenses on the Statement of Income and Fund Balance. 
The changes in the actuarial gains/losses and prior service 
costs/credits for 2009 and 2008 of ($27.6) million and $5.3 million, 
respectively, are reported as other comprehensive income in the 
"Unrealized postretirement benefit (loss) gain" line item. Key 
actuarial assumptions used in the accounting for the plan include the 
discount rate of 5.25 percent, the rate of compensation increase of 
4.10 percent, and the dental coverage trend rate of 7.0 percent. The 
discount rate of 5.25 percent is based upon rates of return on high-
quality fixed income investments whose cash flows match the timing and 
amount of expected benefit payments. 

14. Commitments and Off-Balance-Sheet Exposure: 

Commitments: 

Leased Space: 

The FDIC's lease commitments total $158 million for future years. The 
lease agreements contain escalation clauses resulting in adjustments, 
usually on an annual basis. The DIF recognized leased space expense of 
$29 million and $21 million for the years ended December 31, 2009 and 
2008, respectively. 

Leased Space Commitments: 
Dollars in Thousands: 

2010: $37,630; 
2011: $37,553; 
2012: $30,982; 
2013: $21,182; 
2014: $17,995; 
2015/Thereafter: $13,041. 

Off-Balance-Sheet Exposure: 

Deposit Insurance: 

As of December 31, 2009, the estimated insured deposits for DIF were 
$5.4 trillion. This estimate is derived primarily from quarterly 
financial data submitted by insured depository institutions to the 
FDIC. This estimate represents the accounting loss that would be 
realized if all insured depository institutions were to fail and the 
acquired assets provided no recoveries. 

15. Disclosures About the Fair Value of Financial Instruments: 

Financial assets recognized and measured at fair value on a recurring 
basis at each reporting date include cash equivalents (Note 2), the 
investment in U.S. Treasury obligations (Note 3) and trust preferred 
securities (Note 5). The following tables present the D1F's financial 
assets measured at fair value as of December 31, 2009 and 2008. 

Assets Measured at Fair Value at December 31, 2000: 
Dollars in Thousands: 

Fair Value Measurements Using: 

Assets: 

Cash and cash equivalents (Special U.S. Treasuries)[1]: 
Quoted Prices in Active	Markets for Identical Assets (Level 1): 
$54,092,423; 
Significant Other Observable Inputs (Level 2): $0; 
Significant Unobservable Inputs (Level 3): $0; 
Total Assets at Fair Value: $54,092,421. 

Investment in U.S. Treasury Obligations (Available-for-Sale)[2]: 
Quoted Prices in Active	Markets for Identical Assets (Level 1): 
$5,486,799; 
Significant Other Observable Inputs (Level 2): $0; 
Significant Unobservable Inputs (Level 3): $0; 
Total Assets at Fair Value: $5,486,799. 

Trust preferred securities (Available-for-Sale): 
Quoted Prices in Active	Markets for Identical Assets (Level 1): $0; 
Significant Other Observable Inputs (Level 2): $0; 
Significant Unobservable Inputs (Level 3): $1,961,824; 
Total Assets at Fair Value: $1,961,824. 

Trust preferred securities held for UST (Note 16): 
Quoted Prices in Active	Markets for Identical Assets (Level 1): $0; 
Significant Other Observable Inputs (Level 2): $0; 
Significant Unobservable Inputs (Level 3): $705,375; 
Total Assets at Fair Value: $705,375. 

Total Assets: 
Quoted Prices in Active	Markets for Identical Assets (Level 1): 
$59,579,222; 
Significant Other Observable Inputs (Level 2): $0; 
Significant Unobservable Inputs (Level 3): $2,667,199; 
Total Assets at Fair Value: $62,246,421. 

[1] Cash equivalents are Special U.S. Treasury Certificates with 
overnight maturities valued at prevailing interest rates established 
by the U.S. Bureau of Public Debt. 

[2] The investment in U.S. Treasury obligations is measured based on 
prevailing market yields for federal government entities. 

Ands Measured at Fair Value at December 31, 2008: 
Dollars in Thousands: 

Fair Value Measurements Using: 

Cash and cash equivalents (Special U.S. Treasuries)[1]: 
Quoted Prices in Active	Markets for Identical Assets (Level 1): 
$1,011,430; 
Significant Other Observable Inputs (Level 2): $0; 
Significant Unobservable Inputs (Level 3): $0; 
Total Assets at Fair Value: $1,011,430. 

Investment in U.S. Treasury Obligations (Available-for-Sale)[2]: 
Quoted Prices in Active	Markets for Identical Assets (Level 1): 
$27,859,080; 
Significant Other Observable Inputs (Level 2): $0; 
Significant Unobservable Inputs (Level 3): $0; 
Total Assets at Fair Value: $27,859,080. 

Total Assets: 
Quoted Prices in Active	Markets for Identical Assets (Level 1): 
$28,870,510; 
Significant Other Observable Inputs (Level 2): $0; 
Significant Unobservable Inputs (Level 3): $0; 
Total Assets at Fair Value: $28,870,510. 

[1] Cash equivalents are Special U.S. Treasury Certificates with 
overnight maturities valued at prevailing interest rates established 
by the U.S Bureau of Debt. 

[2] The investment in U.S. Treasury obligations is measured based on 
prevailing market yields for federal government entities. 

In exchange for prior loss-share guarantee coverage provided to 
Citigroup as described in Note 5, the FDIC and the Treasury received 
trust preferred securities. The fair value of the trust
preferred securities was derived from a proprietary valuation model 
developed by the Treasury to estimate the value of financial 
instruments obtained as consideration for actions taken to stabilize 
the financial system under the Troubled Asset Relief Program pursuant 
to the Emergency Economic Stabilization Act of 2008. The model 
establishes the fair value of the TruPs based on the discounted 
present value of expected cash flows. Key inputs include assumptions 
about default probabilities, dividend deferral probabilities and call 
options. The FDIC independently performed benchmark procedures to 
ensure the reasonableness of the model outputs. 

Some of the DIF's financial assets and liabilities are not recognized 
at fair value but are recorded at amounts that approximate fair value 
due to their short maturities and/or comparability with current 
interest rates. Such items include interest receivable on investments, 
assessment receivables, other short-term receivables, accounts payable 
and other liabilities. 

The net receivables from resolutions primarily include the DIF's 
subrogated claim arising from obligations to insured depositors. The 
resolution entity 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 DIF's allowance for loss against the net receivables from 
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 resolution entity assets (see Note 4), such 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 a fair 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 resolution entity payments to 
the DIF on the subrogated claim does not necessarily correspond with 
the timing of collections on resolution entity assets. Therefore, the 
effect of discounting used by resolution entities should not 
necessarily be viewed as producing an estimate of fair value for the 
net receivables from resolutions. 

There is no readily available market for guarantees associated with 
systemic risk (see Note 16). 

16. Systemic Risk Transactions: 

Pursuant to systemic risk determinations, the FDIC established the 
Temporary Liquidity Guarantee Program (TLGP) for insured depository 
institutions, designated affiliates and certain holding companies 
during 2008, and provided loss-share guarantee assistance to Citigroup 
on a pool of covered assets in 2009, which was subsequently terminated 
as described in Note 5. The FDIC received consideration in exchange 
for guarantees issued under the TLGP and guarantee assistance provided 
to Citigroup. 

At inception of the guarantees, the DIF recognized a liability for the 
non-contingent fair value of the obligation the FDIC has undertaken to 
stand ready to perform over the term of the guarantees. As required by 
FASB ASC 460, Guarantees, this non-contingent liability was measured 
at the amount of consideration received in exchange for issuing the 
guarantee. As systemic risk expenses are incurred (including 
contingent liabilities and valuation allowances), the D1F will reduce 
deferred revenue and recognize an offsetting amount as systemic risk 
revenue. Revenue recognition will also occur during the term of the 
guarantee if a supportable and documented analysis has determined that 
the consideration and any related interest/dividend income received 
exceeds the projected systemic risk losses. Any deferred revenue not 
absorbed by losses during the guarantee period will be recognized as 
revenue to the DIF. 

Temporary Liquidity Guarantee Program: 

The FDIC established the TLGP on October 14, 2008 in an effort to 
counter the system-wide crisis in the nation's financial sector. The 
TLGP consists of two components: (1) the Debt Guarantee Program (DGP), 
and (2) the Transaction Account Guarantee Program (TAG). On November 
26, 2008, a final rule for the program was published in the Federal 
Register and codified in part 370 of title 12 of the Code of Federal 
Regulations (12 CFR Part 370). 

Debi Guarantee Program: 

The Debt Guarantee Program initially permitted participating entities 
to issue FDIC-guaranteed senior unsecured debt between October l4, 
2008 and June 30, 2009, with the FDIC's guarantee for such debt to 
expire on the earlier of the maturity of the debt (or the conversion 
date, for mandatory convertible debt issued on or after February 27, 
2009) or June 30, 2012. To reduce market disruption at the conclusion 
of the DGP and to facilitate the orderly phase-out of the program, the 
FDIC issued a final rule on June 3, 2009, that extended the period 
during which participating entities could issue FDIC-guaranteed debt, 
through October 31, 2009. Concurrently, the FDIC extended the 
expiration of the guarantee period from June 30, 2012 to December 31, 
2012. Upon the expiration of the extended DGP, the final rule grants 
existing participating entities access to a limited six-month 
emergency FDIC guarantee facility expiring on April 30, 2010, The 
FDIC's guarantee for all debt expires on the earliest of the mandatory 
convertible debt, the stated date of maturity, or December 31, 2012. 

Fees for participation in the DGP are reserved for possible TLGP 
losses. Since inception, the FDIC has recorded $8.3 billion of 
guarantee fees and fees of $1.2 billion from participating entities 
that elected to issue senior unsecured non-guaranteed debt. During 
2009. the total amount collected under the DGP was $7.1 billion, 
comprised of $6.1 billion for guaranteed debt and $1.0 billion for non-
guaranteed debt. The fees are included in the "Cash and cash 
equivalents ó restricted ó systemic risk" line item and recognized as 
"Deferred revenue-systemic risk" on the Balance Sheet. 

Additionally, as described in Note 5. the FDIC holds $800 million (par 
value) of Citigroup trust preferred securities (and any related 
interest) as security in the event payments are required to be made by 
the FDIC for guaranteed debt instruments issued by Citigroup or any of 
its affiliates under the TLGP. At December 31, 2009, the fair value of 
these securities totaled $705.4 million, and was determined using the 
valuation methodology described in Note 15 for other trust preferred 
securities held by the D1 F. Because these TruPs are held on behalf of 
the Treasury, the decline in value has no impact on the fund balance 
of the DIF. 

The FDIC's payment obligation under the DGP will be triggered by a 
payment default. In the event of default, the FDIC will continue to 
make scheduled principal and interest payments under the terms of the 
debt instrument through its maturity, or in the case of mandatory 
convertible debt, through the mandatory conversion date. The 
debtbholder or representative must assign to the FDIC the right to 
receive any and all distributions on the guaranteed debt from any 
insolvency proceeding, including the proceeds of any receivership or 
bankruptcy estate, to the extent of payments made under the guarantee. 

Since inception of the program, $618 billion in total guaranteed debt 
has been issued. To date, one debt issuer has defaulted on guaranteed 
debt of $2.0 million. Eighty-four financial entities (54 insured 
depository institutions and 30 affiliates and holding companies) had 
$309 billion in guaranteed debt outstanding at year-end 2009. At 
December 3I, 2009, the contingent liability for this guarantee was 
$87.9 million and is included in the "Contingent liability for 
Systemic Risk" line item. The FDIC believes that it is reasonably 
possible that additional estimated losses of approximately $2.5 
billion could occur under the DGP. 

Transaction Account Guarantee Program: 

The Transaction Account Guarantee Program provides unlimited coverage 
for non-interest bearing transaction accounts held by insured 
depository institutions on all deposit amounts exceeding the fully 
insured limit (generally $250,000). In August 2009, the FDIC extended 
the expiration date of the TAG program from December 31, 2009 to June 
30, 2010. During 2009, the FDIC collected TAG fees of $639.2 million 
which are earmarked for TLGP possible losses and payments. 

Upon the failure of a participating insured depository institution, 
payment of guaranteed claims of depositors with non-interest bearing 
transaction accounts are funded with TLGP restricted cash. The FDIC 
will be subrogated to these claims of depositors against the failed 
entity, and dividend payments by the receivership are deposited back 
into TLGP restricted accounts. 

At December 31, 2009, the "Receivables and other assets ó systemic 
risk" line item includes $187.5 million of estimated TAG fees due from 
insured depository institutions. This receivable was collected at the 
end of the first quarter of 2010. 

The contingent liability resulting from the anticipated failure of 
insured institutions participating in the TAG was $1.3 billion at 
December 31, 2009. For the 2009 failures, estimated losses of $1.7 
billion were recorded for the non-interest bearing transaction 
accounts. The provision for anticipated failures and the loss recorded 
at resolution are both recorded as "Systemic risk expenses" with a 
corresponding amount of guarantee fees recognized as "Systemic risk 
revenue." The FDIC believes that it is reasonably possible that 
additional estimated losses of approximately $721 million could occur 
under the TAG. 

As of December 31, 2009, the maximum estimated exposure under the TAG 
is $834 billion. However, 525 institutions elected to exit the TAG 
program after December 31, 2009. The reported TAG deposits associated 
with these institutions at December 31, 2009, totaled $568 billion. 
Consequently, the maximum exposure under the TAG as of January 1, 
2010, is estimated to be $266 billion. 

Systemic Risk Activity at December 31, 2009: 
Dollars in Thousands: 
	
Balance at 01-01-09: 
Cash and cash equivalents - restricted - systemic risk: $2,377,387; 
Receivables and	other assets - systemic risk: $1,138,132; 
Deferred revenue - systemic risk: ($2,077.880); 
Contingent liability - systemic risk: ($1,437,638); 
Revenue/Expenses - systemic risk: $0. 

Guaranteed and non-guaranteed debt fees collected: 
Cash and cash equivalents - restricted - systemic risk: $7,066,423; 
Receivables and	other assets - systemic risk: ($1,026,870); 
Deferred revenue - systemic risk: ($6,039,353); 
Contingent liability - systemic risk: $0; 
Revenue/Expenses - systemic risk: $0. 

TAG fees collected: 
Cash and cash equivalents - restricted - systemic risk: $639,176; 
Receivables and	other assets - systemic risk: ($89,977); 
Deferred revenue - systemic risk: ($549,199); 
Contingent liability - systemic risk: $0; 
Revenue/Expenses - systemic risk: $0. 
	
Receivable for TAG fees: 
Cash and cash equivalents - restricted - systemic risk: $0; 
Receivables and	other assets - systemic risk: $187,541; 
Deferred revenue - systemic risk: ($187,541); 
Contingent liability - systemic risk: $0; 	
Revenue/Expenses - systemic risk: $0. 
	
Receivable for TAG accounts at failed institutions: 
Cash and cash equivalents - restricted - systemic risk: $0; 
Receivables and	other assets - systemic risk: $4,124,849; 		
Deferred revenue - systemic risk: $0; 
Contingent liability - systemic risk: $0; 	
Revenue/Expenses - systemic risk: $0. 

TruPs and accrued interest held for UST: 
Cash and cash equivalents - restricted - systemic risk: $0; 
Receivables and	other assets - systemic risk: $801,422; 	
Deferred revenue - systemic risk: ($801,422)		
Contingent liability - systemic risk: $0; 	
Revenue/Expenses - systemic risk: $0. 

Market value adjustment on TruPs held for UST: 
Cash and cash equivalents - restricted - systemic risk: $0; 
Receivables and	other assets - systemic risk: ($94,624); 
Deferred revenue - systemic risk: $94,624; 
Contingent liability - systemic risk: $0; 	
Revenue/Expenses - systemic risk: $0. 

Estimated losses for TAG accounts at failed institutions: 
Cash and cash equivalents - restricted - systemic risk: $0; 
Receivables and	other assets - systemic risk: ($1,741,653); 
Deferred revenue - systemic risk: $1,741,653; 
Contingent liability - systemic risk: $0; 	
Revenue/Expenses - systemic risk: $1,741,653. 

Provisions for TLGP losses in future failures: 
Cash and cash equivalents - restricted - systemic risk: $0; 
Receivables and	other assets - systemic risk: $0; 
Deferred revenue - systemic risk: ($25,672); 
Contingent liability - systemic risk: $25,672; 
Revenue/Expenses - systemic risk: ($25,672). 

Default of guaranteed debt issued by a failed bank: 
Cash and cash equivalents - restricted - systemic risk: ($16); 
Receivables and	other assets - systemic risk: $0; 
Deferred revenue - systemic risk: $16; 
Contingent liability - systemic risk: $0; 
Revenue/Expenses - systemic risk: $2,033. 

Overnight investment interest collected: 
Cash and cash equivalents - restricted - systemic risk: $6,085; 
Receivables and	other assets - systemic risk: $0; 
Deferred revenue - systemic risk: ($6,085); 
Contingent liability - systemic risk: $0; 
Revenue/Expenses - systemic risk: $0. 

TLGP operating expenses: 
Cash and cash equivalents - restricted - systemic risk: $0; 
Receivables and	other assets - systemic risk: $0; 
Deferred revenue - systemic risk: $3,612; 
Contingent liability - systemic risk: $0; 
Revenue/Expenses - systemic risk: $3,612. 

Reimbursement to DIP for TAG claims and TLGP operating expenses 
incurred: 
Cash and cash equivalents - restricted - systemic risk: ($3,658,466); 
Receivables and	other assets - systemic risk: $0; 
Deferred revenue - systemic risk: $0; 
Contingent liability - systemic risk: $0; 	
Revenue/Expenses - systemic risk: $0. 

Totals: 
Cash and cash equivalents - restricted - systemic risk: $6,430,519; 
Receivables and	other assets - systemic risk: $3,290,820[A]; 
Deferred revenue - systemic risk: ($7,847,447); 
Contingent liability - systemic risk: ($1,411,960); 
Revenue/Expenses - systemic risk: $1,721,626. 

[A] Total may not equal the line item due to rounding. 

17. Subsequent Events: 

Subsequent events have been evaluated through June 14, 2010, the date 
the financial statements are available to be issued. 

FDIC Guaranteed Debt of Limited Liability Companies: 

During 2010, the FDIC in its corporate capacity offered guarantees on 
$997.4 million in purchase money notes issued by newly-formed limited 
liability companies (LLCs). The terms of the guarantees expire no 
later than the final note maturing in 2020. The LLCs were created to 
dispose of $4.6 billion of performing and non-performing commercial 
and residential real estate loans as well as related assets purchased 
from multiple receiverships (multibank structured transactions). 
Private investors purchased 40-50 percent ownership interests in the 
LLCs, with the receiverships holding the remaining 50-60 percent 
equity interest. In exchange for the guarantees, the D1F expects to 
receive estimated fees totaling $29.0 million. Based upon modeling 
scenarios, the cash flows from the assets of each LLC provide 
sufficient coverage to defease the debts by their maturity dates. 
Therefore, the estimated loss to the DIF from these guarantees is zero. 

During 2010, FDIC-guaranteed notes issued by three LLCs to 
receiverships during 2009 and 2010 were sold to private investors. The 
timely payment of principal due on the notes will continue to be fully 
guaranteed by the FDIC (see Note 8). 

FDIC Guaranteed Debt of Notes: 

On March 12, 2010, the FDIC issued $1.8 billion of notes backed by 
approximately S16 billion of residential mortgage-backed securities 
(RMBS) from seven failed bank receiverships. The underlying securities 
were sold to a statutory trust, which subsequently issued two series 
of senior notes. The notes mature in 2038 and 2048 and are backed by 
the RMBS. Investors included banks, investment funds, insurance funds, 
and pension funds. The $1.8 billion in proceeds will go to the seven 
failed bank receiverships and eventually be used to pay creditors, 
including the DEF. This will maximize recoveries for the receiverships 
and recover substantial funds for the DIF. The FDIC, in its corporate 
capacity, will fully and unconditionally guarantee the timely payment 
of principal and interest due and payable on the senior notes. In 
exchange for the guarantees, the DIF expects to receive monthly 
payments based on the outstanding principal balance of the senior 
notes. 

Amendment of the TLGP to Extend the Transaction Account Guarantee 
Program (TAG): 

An Interim Rule with request for comments, issued on April 19, 2010, 
amends the TLGP to extend the expiration date for the TAG from June 
30, 2010 to December 31, 2010, and grants the FDIC discretion to 
extend the program to December 31, 201 l, without additional 
rulemaking, if economic conditions warrant such an extension. 
Assessment rates for institutions participating in the TAG remain 
unchanged under the interim rule. Additionally, the interim rule 
would: I) require TAG assessment reporting based on average daily 
account balances; 2) reduce the maximum interest rate for qualifying 
negotiable order of withdrawal (NOW) accounts guaranteed pursuant to 
the TAG to 025 percent from 0.50 percent; 3) provide an irrevocable, 
one-time opportunity for institutions currently participating in the 
TAG to opt-out of the program, effective on July 1, 2010; and 4) 
establish conforming disclosure requirements for institutions that opt-
out of and those that continue to participate in the extended program. 

Proposed Revision of the Deposit Insurance Assessment System: 

On April 13, 2010, the FDIC Board of Directors approved for issuance a 
Notice of Proposed Rulemaking on Assessments (NPR) to revise the 
assessment system applicable to large banks. The NPR would eliminate 
risk categories and the use of long-term debt issuer ratings, and 
replace the financial ratios currently used with a scorecard 
consisting of well-defined financial measures that are more forward 
looking and better suited for large institutions. Additionally, the 
proposal would alter the assessment rates applicable to all insured 
depository institutions to ensure that the revenue collected under the 
proposed assessment system would approximately equal that under the 
existing assessment system. 

2010 Failures Through June 14, 2010: 

Through June 14, 2010, 82 insured institutions failed with total 
losses to the DIF estimated to be $16.8 billion. 

[End of section] 

FSLIC Resolution Fund's Financial Statements: 

Balance Sheet: FSLIC Resolution Fund: 

Federal Deposit Insurance Corporation: 

FSLIC Resolution Fund Balance Sheet at December 31: 
Dollars in Thousands: 

Assets: 

Cash and cash equivalents: 
2009: $3,470,125; 
2008: $3,467,227; 

Receivables from thrift resolutions and other assets, net (Note 3): 
2009: $32,338; 
2008: $34,952; 

Receivables from U.S. Treasury for goodwill judgments (Note 4): 
2009: $405,412; 
2008: $142,305; 

Total Assets: 
2009: $3,907,875; 
2008: $3,644,484; 

Liabilities: 

Accounts payable and other liabilities: 
2009: $2,972; 
2008: $8,066; 

Contingent liabilities for litigation losses and other (Note 4): 
2009: $405,412; 
2008: $142,305; 

Total Liabilities: 
2009: $408,384; 
2008: $150,371; 

Resolution Equity (Note 5): 

Contributed capital: 
2009: $127,847,696; 
2008: $127,442,179; 

Accumulated deficit: 
2009: ($124,301,205); 
2008: ($123,948,066); 

Total Resolution Equity: 
2009: $3,499,491; 
2008: $3,494,113; 

Total Liabilities and Resolution Equity: 
2009: $3,907,875; 
2008: $3,644,484; 

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

[End of balance sheet] 

Statement of Income and Accumulated Deficit: 

FSLIC Resolution Fund: 

Federal Deposit Insurance Corporation: 

FSLIC Resolution Fund Statement of Income and Accumulated Deficit for 
the Years Ended December 31 (Dollars in Thousands): 

Revenue: 

Interest on U.S. Treasury obligations: 
2009: $3,167; 
2008: $56,128. 

Other revenue: 
2009: $5,276; 
2008: $7,040. 

Total Revenue: 
2009: $8,443; 
2008: $63,168. 

Expenses and Losses: 

Operating expenses: 
2009: $4,905; 
2008: $3,188. 

Provision for losses:
2009: $2,051; 
2008: ($891). 

Goodwill/Guarini litigation expenses (Note 4):
2009: $408,997; 
2008: $254,247. 

Recovery of tax benefits: 
2009: {$10,279); 
2008: ($26,846). 

Other expenses: 
2009: $2,908; 
2008: $11,623. 

Total Expenses and Losses: 
2009: $408,582; 
2008: $241,321. 

Net (Loss)/Income: 
2009: ($400,139); 
2008: ($178,153). 

Accumulated Deficit - Beginning: 
2009: {$123,948,066); 
2008: ($123,769,913). 

Accumulated Deficit - Ending: 
2009: ($124,348,205); 
2008: ($123,948,066). 

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

[End of Statement of Income and Accumulated Deficit] 

Statement of Cash Flows: 

FSLIC Resolution Fund: 

Federal Deposit Insurance Corporation: 

FSLIC Resolution Fund Statement of Cash Flows for the Years Ended 
December 31 (Dollars in Thousands): 

Operating Activities: 

Net Loss): 
2009: ($400,139); 
2008: ($178,153). 

Adjustments to reconcile net (loss)/income to net cash used by
operating activities: Provision for losses: 
2009: $2,051; 
2008: ($891). 

Change in Operating Assets and Liabilities: 

Decrease in receivables from thrift resolutions and other assets: 
2009: $563; 
2008: $751. 

Decrease in accounts payable and other liabilities: 
2009: ($5,094); 
2008: $3,791. 

Increase in contingent liabilities for litigation losses and 
other: 
2009: $263,107; 
2008: $106,954. 

Net Cash Used by Operating Activities: 
2009: ($139,512); 
2008: ($67,548). 

Financing Activities: 

Provided by: U.S. Treasury payments for goodwill litigation (Note 4): 
2009: $142,410; 
2008: $142,642. 

Used by: Payments to Resolution Funding Corporation (Note 5): 
2009: $0; 
2008: ($225,000). 

Net Cash (Used)/Provided by Financing Activities: 
2009: $142,410; 
2008: ($82,358). 

Net (Decrease)/Increase in Cash and Cash Equivalents: 
2009: $2,898; 
2008: ($149,906). 

Cash and Cash Equivalents - Beginning: 
2009: $3,467,227; 
2008: $3,617,133. 

Cash and Cash Equivalents - Ending: 
2009: $3,470,125; 
2008: $3,467,227. 

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

[End of Statement of Cash Flows] 

Notes to the Financial Statements: 

Notes to the Financial Statements: 
FSLIC Resolution Fund: 
December 31, 2009 and 2008: 

1. 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 fund 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. 
Further, 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 (FRFRTC). The assets of one pool are 
not available to satisfy obligations of the other. 

The FDIC is the administrator of the FRF and the Deposit Insurance 
Fund. These funds are maintained separately to carry out their 
respective mandates. 

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 FRF-FSLIC 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. Some of the issues and items that 
remain open in FRF are: 1) criminal restitution orders (generally have 
from 3 to 8 years remaining to enforce); 2) collections of settlements 
and judgments obtained against officers and directors and other 
professionals responsible for causing or contributing to thrift losses 
(generally have up to 10 years remaining to enforce); 3) numerous 
assistance agreements entered into by the former FSLIC (FRF could 
continue to receive tax benefits sharing through year 2013); 4) 
goodwill litigation (no final date for resolution has been 
established; see Note 4); and 5) affordable housing program monitoring 
(requirements can exceed 25 years). The FRF could potentially realize 
substantial recoveries from the tax benefits sharing of up to 
approximately $23l 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 
accordance with U.S. generally accepted accounting principles (GAAP). 
As permitted by the Federal Accounting Standards Advisory Board's 
Statement of Federal Financial Accounting Standards 34, The Hierarchy 
of Generally Accepted Accounting Principles, Including the Application 
of Standards Issued by the Financial Accounting Standards Board, the 
FDIC prepares financial statements in conformity with standards 
promulgated by the Financial Accounting Standards Board (FASB). These 
statements do not include reporting for assets and liabilities of 
resolution entities because these entities are legally separate and 
distinct, and the FRF does not have any ownership interests in them. 
Periodic and final accountability reports of resolution entities are 
furnished to courts, supervisory authorities, and others upon request. 

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. 

Cash Equivalents: 

Cash equivalents are short-term, highly liquid investments consisting 
primarily of U.S. Treasury Overnight Certificates. 

Provision for Losses: 

The provision for losses represents the change in the valuation of the 
receivables from thrift resolutions and other assets. 

Disclosure about Recent Accounting Pronouncements: 

* Financial Accounting Standards Board (FASB) Accounting Standards 
Codification (ASC) 105, Generally Accepted Accounting Principles 
(formerly SFAS No. 168, The FASB Accounting Standards Codification and 
the Hierarchy of Generally Accepted Accounting Principles - a 
replacement of FASB Statement No. 162, issued in June 2009) became 
effective for financial statements covering periods ending after 
September 15, 2009. The FDIC follows accounting standards set by the 
FASB, On July 1, 2009, the FASB ASC was launched and became the sole 
source of authoritative accounting principles applicable to the FDIC. 

All existing standards that were used to create the Codification have 
become superseded. As a result, references to generally accepted 
accounting principles in these Notes will consist of the numbers used 
in the Codification and, if applicable, the former pronouncement 
number. The Codification's purpose was not to create new accounting
or reporting guidance, but to organize and simplify authoritative GAAP 
literature. Consequently, there will be no change to FRF's financial 
statements due to the implementation of this Statement. 

* SFAS No. 167, Amendments to FASB Interpretation No. 46(R), was 
issued by the FASB in June 2009, and subsequently codified upon 
issuance of Accounting Standards Update No. 2009-17, Consolidations 
(ASC 810)- Improvements to Financial Reporting 6y Enterprises Involved 
with Variable Interest Entities. SFAS 167, effective for reporting 
periods beginning after November 15, 2009, modifies the former 
quantitative approach for determining the primary beneficiary of a 
variable interest entity (VIE) to a qualitative assessment. An 
enterprise must determine qualitatively whether it has (1) the power 
to direct the activities of the VIE that most significantly impact the 
entity's economic performance and (2) the obligation to absorb losses 
of the VIE or the right to receive benefits from the VIE that could 
potentially be significant to the VIE. if an enterprise has both of 
these characteristics, the enterprise is considered the primary 
beneficiary and must consolidate the VIE. Management is currently 
reviewing the possible impact, if any, of SFAS 167 (now codified in 
ASC S10) on FRF's accounting and financial reporting requirements for 
2010. 

* SFAS No. 166, Accounting for Transfers of Financial Assets - an 
amendment of FASB Statement No. 190, was issued by the FASB in June 
2009. Subsequently, the FASB issued Accounting Standards Update No. 
2009-16, Transfers and Servicing (ASC 860) -Accounting for Transfers 
of Financial Assets, to formally incorporate the provisions of SFAS 
No. 166 into the Codification. SFAS 166 removes the concept of a 
qualifying special-purpose entity from GAAP, changes the requirements 
for derecognizing financial assets, and requires additional 
disclosures about a transferor's continuing involvement in transferred 
financial assets. The FASB's objective is to improve the information 
that a reporting entity provides in its financial statements about a 
transfer of financial assets; the effects of a transfer on its 
financial position, financial performance, and cash flows; and a 
transferor's continuing involvement, if any, in transferred financial 
assets. 

The provisions of SFAS 166 (now codified in ASC 860) become effective 
for the FRF for all transfers of financial assets occurring on or 
after January 1, 2010. 

* SFAS No. 165, Subsequent Events, was issued in May 2009 and 
subsequently codified in FASB ASC 855, Subsequent Events. ASC 855 
represents the inclusion of guidance on subsequent events in the 
accounting literature. Historically, management had relied on auditing 
literature for guidance on assessing and disclosing subsequent events. 
ASC 855 now requires the disclosure of the date through which an 
entity has evaluated subsequent events and the basis for that date - 
that is, whether that date represents the date the financial 
statements were issued or were available to be issued. These new 
provisions, effective for the FRF as of December 31, 2009, do not have 
a significant impact on the financial statements. 

Other recent accounting pronouncements have been 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. 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 RTC are a significant source of repayment of 
the FRF's receivables from thrift resolutions. As of December 31, 
2009, 8 of the 850 FRF receiverships remain active primarily due to 
unresolved litigation, including goodwill matters. 

The FRF receiverships held assets with a book value of $20 million as 
of December 3l, 2009 and 2008, (which primarily consist of cash, 
investments, and miscellaneous receivables). The estimated cash 
recoveries from the management and disposition of these assets arc 
used to derive the allowance for losses. The FRF receivership assets 
are valued by discounting projected cash flows, net of liquidation 
costs using current market-based risk factors applicable to a given 
asset's type and quality. These estimated asset 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 
current estimates. 

Other Assets: 

Other assets primarily include credit enhancement reserves valued at 
821.3 million and $21.2 million as of December 31, 2009 and 2008, 
respectively. The credit enhancement reserves resulted from swap 
transactions where the former RTC received mortgage-backed securities 
in exchange for single-family mortgage loans. The 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. 

Receivables From Thrift Resolutions and Other Assets, Net at December 
31: 
Dollars in Thousands: 

Receivables from closed thrifts: 
2009: $5,744,509; 
2008: $5,725,450. 

Allowance for losses: 
2009: ($5,736,737); 
2008: ($5,717,740). 

Receivables from Thrift Resolutions, Net: 
2009: $7,772; 
2008: $7,710. 

Other assets: 
2009: $24,566; 
2008: $27,242. 

Total: 
2009: $32,338; 
2008: $34,952. 

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. 
As of December 31, 2009 and 2008, respectively, $405.4 million and 
$142.3 million were recorded as probable losses. Additionally, at 
December 31, 2009, the FDIC has determined that there are no losses 
from unresolved legal cases considered to be reasonably possible. 

In December 2008, FDIC concluded a 13 1/2 year old legal case (FDIC v. 
Hurwitz) arising from the December 30, 1988 failure of United Savings 
Association of Texas. In August 2005, the District Court ordered 
sanctions against the FDIC in the amount of $72 million. However, in 
August 2008, the Fifth Circuit Court of Appeals reversed $57 million 
of the sanctions, but remanded the remaining $15 million to the 
District Court to determine what portion should be paid. Subsequently, 
in November 2008, an agreement was reached between the parties, 
whereby the FDIC would pay $10 million to settle the case. On December 
17, 2008, the settlement agreement was fully executed and the 
settlement funds were paid. The $10 million payment is recognized in 
the "Other expenses" line item. 

Additional Contingency: 

Goodwill Litigation: 

In United States v. Winstar Carp., 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 
eight remaining cases are pending against the United States based on 
alleged breaches of these agreements. 

On July 22, 1998, the Department of Justice's (DOA) 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, (989, upon the dissolution of the 
FSLIC. 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 FDIC General Counsel 
concluded that, 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. 

The goodwill lawsuits are against the United States and as such are 
defended by the DOJ. On January 26, 2010, 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 
representations from the DOI, the FDIC is unable to estimate a range 
of loss to the FRFFSLIC from the goodwill litigation. However, the FRF 
can draw from an appropriation provided by Section l10 of the 
Department of Justice Appropriations Act, 2000 (Public Law 106-113, 
Appendix A, Title 1, 113 Stat. 1501A-3, 1501A-20) such sums as may be 
necessary for the 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 liability for goodwill litigation 
should have a corresponding receivable from the U.S. Treasury and 
therefore have no net impact on the financial condition of the FRF-
FSLIC. 

The FRF paid $142.4 million as a result of judgments and settlements 
in four goodwill cases for the year ended December 31, 2009, compared 
to $142.6 million for four goodwill casts for the year ended December 
31, 2008. As described above, the FRF received appropriations from the 
U.S. Treasury to fund these payments. Based on recent court decisions, 
the FRF accrued a $405.4 million contingent liability and offsetting 
receivable from the U.S. Treasury for judgments in six cases. During 
2009. four of the six cases were fully adjudicated but not paid as of 
year end. 

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 DU. Under the terms of the MOU, 
the FRF-FSLIC paid $3.5 million and $4.3 million to DO) for fiscal 
years (FY) 2010 and 2009, respectively. As in prior years, DOJ carried 
over and applied all unused funds toward current FY charges. At 
December 31, 2009, DO) had an additional $3.3 million in unused FY 
2009 funds that were applied against FY 2010 charges of $6.8 million. 

Guarini Litigation: 

Paralleling the goodwill cases are similar cases alleging that the 
government breached agreements regarding tax benefits associated with 
certain FSLIC-assisted 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. 

All eight of the original Guarini cases have been settled. However, a 
case settled in 2006 further obligates the FRF-FSLIC as a guarantor 
for all tax liabilities in the event the settlement amount is 
determined by tax authorities to be taxable. The maximum potential 
exposure under this guarantee is approximately $81 million. However, 
the FDIC believes that it is very unlikely the settlement will be 
subject to taxation. More definitive information may be available 
during 2010, after the IRS completes its Large Case Program audit on 
the institution's 2006 returns. The FRF is not expected to fund any 
payment under this guarantee and no liability has been recorded. 

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 been paid off, refinanced, or the 
period for filing claims has expired. The FDIC's estimate of maximum 
potential exposure to the FRF is $13.2 million. No claims in 
connection with representations and warranties have been asserted 
since 1998 on the remaining open agreements. Because of the age of the 
remaining portfolio and lack of claim activity, the FDIC does not 
expect new claims to be asserted in the future. Consequently, the 
financial statements at December 31, 2009 and 2008, do not include a 
liability for these agreements. 

5. 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 arc 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. 

Resolution Equity at December 31, 2009: 
Dollars in Thousands: 

Contributed capital - beginning: 
FRF-FSLIC: $45,692,842; 
FRF-RTC: $81,749,337; 
FRF Consolidated: $127,442,179 

Add: U.S. Treasury payments/receivable for goodwill litigation: 
FRF-FSLIC: $405,517; 
FRF-RTC: $0; 
FRF Consolidated: $405,517; 

Less: REFCORP payments: 
FRF-FSLIC: $0; 
FRF-RTC: $0; 
FRF Consolidated: $0; 

Contributed capital - ending: 
FRF-FSLIC: $46,098,359; 
FRF-RTC: $81,749,337; 
FRF Consolidated: $127,847,696. 

Accumulated deficit: 
FRF-FSLIC: ($42,764,230); 
FRF-RTC: ($81,583,975); 
FRF Consolidated: ($124,348,205). 

Total: 
FRF-FSLIC: $3,334,129; 
FRF-RTC: $166,362; 
FRF Consolidated: $3,499,491. 

Contributed Capital: 

The FRF-FSLIC and the former RTC received $43.5 billion and $60.1 
billion from the U.S. Treasury, respectively, to fund losses from 
thrift resolutions prior to July 1, 1995. 

Additionally, the FRF-FSLIC issued $670 million in capital 
certificates to the Financing Corporation (a mixed-ownership 
government corporation established to function solely as a financing 
vehicle for the FSLIC) and the RTC issued $31.3 billion of these 
instruments to the REFCORP. F1RREA prohibited the payment of dividends 
on any of these capital certificates. 

Through December 31, 2009, the FRF-RTC has returned $4.556 billion to 
the U.S. Treasury and made payments of $5.022 billion to the REFCORP. 
These actions serve to reduce contributed capital. 

FRF-FSLIC received $142.4 million in U.S. Treasury payments for 
goodwill litigation in 2009. Furthermore, $405.4 million and $142.3 
million were accrued for as receivables at year-end 2009 and 2008, 
respectively. The effect of this activity was an increase in 
contributed capital of $405.5 million in 2009. 

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 l, 1996, respectively. The FRF-FSLIC accumulated deficit has 
increased by $13.0 billion, whereas the FRF-RTC accumulated deficit 
has decreased by $6.3 billion, since their dissolution dates. 

6. 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 pension-related expenses were $42 thousand and 
$169 thousand for 2009 and 2008, respectively. 

Postretirement Benefits Other Than Pensions: 

The FRF no longer records a liability for the postretirement benefits 
of life and dental insurance (a long-term liability), due to the 
expected dissolution of the FRF. The liability is recorded by the DIF. 
However, the FRF does continue to pay its proportionate share of the 
yearly claim expenses associated with these benefits. 

7. Disclosures About the Fair Value of Financial Instruments: 

The financial asset recognized and measured at fair value on a 
recurring basis at each reporting date is cash equivalents. The 
following tables present the FRF's financial asset measured at fair 
value as of December 31, 2009 and 2008. 

Assets Measured at Fair Value at December 31, 2009: 
Dollars in Thousands: 

Fair Value Measurements Using: 

Assets: 

Cash and cash equivalents (Special U.S. Treasuries)[1]: 
Quoted Prices in Active	Markets for Identical Assets (Level 1): 
$3,470,125; 
Significant Other Observable Inputs (Level 2): $0; 
Significant Unobservable Inputs (Level 3): $0; 
Total Assets at Fair Value: $3,470,125. 

[1] Cash equivalents are Special U.S. Treasury Certificates with 
overnight maturities valued at prevailing interest rates established 
by the U.S. Bureau of Public Debt. 

Assets Measured at Fair Value at December 31, 2008: 
Dollars in Thousands: 

Fair Value Measurements Using: 

Cash and cash equivalents (Special U.S. Treasuries)[1]: 
Quoted Prices in Active	Markets for Identical Assets (Level 1): 
$3,467,227; 
Significant Other Observable Inputs (Level 2): $0; 
Significant Unobservable Inputs (Level 3): $0; 
Total Assets at Fair Value: $3,467,227. 

[1] Cash equivalents are Special U.S. Treasury Certificates with 
overnight maturities valued at prevailing interest rates established 
by the U.S Bureau of Debt. 

Some of the FRF's financial assets and liabilities are not recognized 
at fair value but arc recorded at amounts that approximate fair value 
due to their short maturities and/or comparability with current 
interest rates. Such items include other short-term receivables and 
accounts payable and other liabilities. 

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 necessarily 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 value. 

Other assets primarily consist of credit enhancement reserves, which 
are valued by performing projected cash flow analyses using market-
based assumptions (see Note 3). 

[End of section] 

Appendix I: Comments from the Federal Deposit Insurance Corporation: 

FDIC: 
Federal Deposit Insurance Corporation: 
Deputy to the Chairman and CFO: 
550 17th Street NW: 
Washington. D.C. 20429-9990: 

June 14, 2010: 

Mr. Steven J. Sebastian: 
Director, Financial Management and Assurance: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Re: FDIC Management Response on the GAO 2009 Financial Statements 
Audit Report: 

Dear Mr. Sebastian: 

Thank you for the opportunity to comment on the U.S. Government 
Accountability Office's (GAO's) draft report titled, Financial Audit: 
Federal Deposit Insurance Corporation Funds' 2009 and 2008 Financial 
Statements, GAO-10-705. We are pleased that the Federal Deposit 
Insurance Corporation (FDIC) received an unqualified opinion for the 
eighteenth consecutive year on the financial statements of its funds: 
the Deposit Insurance Fund (DIF) and the Federal Savings and Loan 
Insurance Corporation (FSLIC) Resolution Fund (FRF). The unqualified 
opinion demonstrates our continued dedication to sound financial 
management. GAO reported that the funds' financial statements were 
presented fairly, in all material respects, in conformity with U.S. 
generally accepted accounting principles (GAAP) and that there was no 
reportable noncompliance with the laws and regulations that were 
tested. During the course of the audit, GAO and the FDIC also held 
detailed discussions regarding the level and sufficiency of internal 
controls during the surge in bank resolution and related crisis 
workload, with GAO concluding that a material weakness existed in the 
loss share estimation process. resulting in an opinion that internal 
controls over financial reporting were not effective in an overall 
sense. Separately, GAO identified a significant deficiency over 
information systems. 

The perspective that the FDIC shared with GAO regarding the loss share 
estimation process was that despite the surge in resolution workload, 
a general review framework existed for the loss share agreements, with 
additional review on the larger agreements, albeit without our normal, 
well-documented audit trail. The weakness related to the loss share 
estimation process resulted in an absolute value error of $611 
million, with the net effect of overstating the estimated loss share 
liability by $138 million against the overall loss share liability of 
$22.2 billion, or 2.75 percent absolute value and 0.62 percent net 
effect. Once corrected, this increased the "Receivables from 
Resolutions, Net" line item on the DIF's balance sheet by $138 million 
to $38.4 billion. Moreover, 68 percent of the overall absolute value 
error is attributable to loss share estimates for three receiverships. 
Though acknowledging that controls over the loss share estimation 
processes needed improvement during 2009. 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 this area. The FDIC's action 
plans in this regard have previously been shared with GAO. The FDIC is 
confident about the comprehensiveness of these control enhancements, 
which are straightforward in design, and does not expect GAO to 
identify repeat findings in the loss share estimation process for 
2010. Similar control improvements are underway in the IT security 
area to resolve the identified control deficiencies in 2010. 

During 2009, new audit standards went into effect that required 
management to provide a written assertion about the effectiveness of 
its internal control over financial reporting. In complying with this 
requirement. the FDIC prepared Management's Report on Internal Control 
over Financial Reporting (see attachment). The report acknowledges 
management's responsibility for establishing and maintaining internal 
control over financial reporting and provides the FDIC's conclusion 
regarding the effectiveness of its internal control. 

The past year was unusually challenging due to the significant 
increase in bank resolution activity over prior years, coupled with 
unprecedented FDIC initiatives such as the Temporary Liquidity 
Guarantee Program (TLGP) and the successful collection of nearly $46 
billion in prepaid assessments. However, as the FDIC continues to 
fulfill its mission to maintain stability and public confidence in the 
nation's financial system, we will continue to ensure that effective 
financial management remains a priority. The FDIC recognizes the 
significance that internal control plays in achieving its mission and 
goals and therefore will seek continual improvement in its internal 
control environment. 

As always, we appreciated the professionalism and dedication of the 
GAO staff during the audit and look forward to continuing our 
productive and successful relationship during the 2010 audit. If you 
have any questions or concerns, please do not hesitate to contact me. 

Sincerely, 

Signed by: 

Steven O. App: 
Deputy to the Chairman and Chief Financial Officer: 

[End of letter] 

Management's Report on Internal Control over Financial Reporting: 

The Federal Deposit Insurance Corporation's (FDIC's) internal control 
over financial reporting is a process effected by those charged with 
governance, management, and other personnel, designed to provide 
reasonable assurance regarding the preparation of reliable financial 
statements in accordance with U.S. generally accepted accounting 
principles (GAAP), and compliance with applicable laws and 
regulations. The objective of the FDIC's internal control over 
financial reporting is to reasonably assure that (1) transactions are 
properly recorded, processed and summarized to permit the preparation
of financial statements in accordance with GAAP, and assets are 
safeguarded against loss from unauthorized acquisition, use, or 
disposition; and (2) transactions are executed in accordance with the 
laws and regulations that could have a direct and material effect on 
the financial statements. 

Management is responsible for establishing and maintaining effective 
internal control over financial reporting. Management assessed the 
effectiveness of the FDIC's internal control over financial reporting 
as of December 31, 2009, through its enterprise risk management 
program that seeks to comply with the spirit of the following 
standards, among others: Federal Managers' Financial Integrity Act 
(FMFIA); Chief Financial Officers Act (CFO Act); Government 
Performance and Results Act (GPRA); Federal Information Security 
Management Act (FISMA); and OMB Circular A-I23. In addition, other 
standards that the FDIC considers are the framework set forth by the 
Committee of Sponsoring Organizations of the Treadway Commission's 
Internal Control ó Integrated Framework and the U.S. Government 
Accountability Office's (GAO's) Standards for Internal Control in the 
Federal Government. 

Based on our evaluation, FDIC management concluded that as of December 
31, 2009, the Corporation generally maintained effective internal 
controls, with the exception of a material weakness related to its 
process for estimating losses on loss-sharing arrangements. Therefore, 
the Corporation did not maintain, in all material respects, effective 
internal control over financial reporting. 

Federal Deposit Insurance Corporation: 
June 14, 2010: 

[End of section] 

Appendix II: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Steven J. Sebastian, (202) 512-3406 or sebastians@gao.gov: 

Staff Acknowledgments: 

The following individuals made key contributions to this report: Gary 
P. Chupka, Assistant Director; Roshni Agarwal; Teressa M. Broadie- 
Gardner; Sophie M. Brown; Sharon O. Byrd; Gloria Cano; Dennis L. 
Clarke; Francis Colantonio Jr.; William J. Cordrey; John C. Craig; 
Nina E. Crocker; Jody Ecie; Margery B. Glover; Mickie E. Gray; Rosanna 
Guerrero; David B. Hayes; Tammi N. Kalugdan; Brian P. Koning; Damian 
Kudelka; Wing Y. Kwong; Dragan Matic; Megan J. McGehrin; N'Sekah K. 
Naftali; Duc M. Ngo; Quang D. Nguyen; Marc E. Oesteicher; Angel J. 
Sharma; Eugene E. Stevens; Jay W. Thomas; Charles M. Vrabel; Nicholas 
Wagaman; and Gregory J. Ziombra. 

[End of section] 

Footnotes: 

[1] A material weakness is a deficiency, or a combination of 
deficiencies, in internal control such that there is a reasonable 
possibility that a material misstatement of the entity's financial 
statements will not be prevented, or detected and corrected on a 
timely basis. A deficiency in internal control exists when the design 
or operation of a control does not allow management or employees, in 
the normal course of performing their assigned functions, to prevent, 
or detect and correct misstatements on a timely basis. 

[2] As discussed in Note 1 to the DIF's financial statements, the 
Helping Families Save Their Homes Act of 2009, Pub. L. No. 111-22, 
div. A, ß204(b), 123 Stat.1632, 1648 (May 20, 2009), extended the time 
limit for a restoration plan to rebuild the reserve ratio of the DIF 
from 5 years to 8 years. 

[3] A significant deficiency is a control deficiency, or combination 
of deficiencies, in internal control that is less severe than a 
material weakness, yet important enough to merit attention by those 
charged with governance. 

[4] Losses covered under the loss-sharing agreements include losses 
incurred through the sale, foreclosure, loan modification, or write- 
down of loans in accordance with the terms of the loss-share agreement. 

[5] The agreements varied in 2009, but typically included a provision 
whereby the acquiring institution would absorb losses up to a certain 
dollar amount (called a first tranche), at which point FDIC would 
begin sharing in the losses by paying the acquirer for 80 percent of 
the losses it experienced. If losses experienced by the acquirer are 
higher than expected, the agreements generally have a threshold at 
which the FDIC would begin paying 95 percent of the losses the 
acquiring institution experiences on the acquired assets. 

[6] The allowance for losses represents the difference between the 
amount owed to the DIF by a receivership for payment of insured 
deposits and other resolution expenses and the amount expected to be 
repaid from the servicing and liquidation of the receivership's assets 
(such as from sale of loans and other assets of the failed 
institution). 

[7] The process by which FDIC estimates the expected loss to the DIF 
from loss-sharing agreements is complex and multifaceted. FDIC 
contracts with asset specialists to review the asset portfolio of the 
failed institution and to develop an anticipated loss rate, expressed 
as a percentage of book value, on the various categories of the failed 
bank's asset portfolio. During 2009, FDIC instructed the contractors 
to derive both high and low estimated loss rates on the various 
categories of assets. FDIC personnel took the contractor's estimates 
and consolidated them into two large asset category pools--single 
family mortgage loans and commercial loans. FDIC then calculated an 
estimated loss rate for each of these consolidated categories of 
assets, attempting to derive a midpoint estimated loss rate from the 
contractor's work. 

[8] GAO, Standards for Internal Control in the Federal Government, 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1], 
(Washington, D.C.: November 1999). 

[9] The loss-share estimates calculated by FDIC personnel are manually 
inputted into a spreadsheet--called the Loss Share Worksheet--to 
calculate an estimate of the loss on the portfolio of a failed 
institution's assets that FDIC expects to incur. The spreadsheet 
contains a series of built-in assumptions, such as estimated holding 
periods for assets and discount rates, which can significantly modify 
the original estimates developed by contracted asset specialists. A 
Loss Share Worksheet was prepared for each of the institutions with 
loss-sharing agreements prior to the time of resolution. 

[10] To facilitate year-end reporting so as to avoid the time-
consuming process of preparing revised individual Loss Share 
Worksheets for each institution, FDIC developed a Statistical Analysis 
System (SAS) program to reproduce the results of the worksheet. The 
SAS program takes the updated loss amounts--derived by taking the mid-
point loss rate calculated by FDIC personnel for each consolidated 
category of assets and multiplying it by the updated book value of 
covered assets held by the acquiring institution--and, replicating the 
formulas and assumptions in the Loss Share Worksheet, calculates 
updated loss estimates. The output from this SAS program is then used 
in the calculation of the allowance for losses on DIF's Receivables 
from Resolutions. 

[11] To calculate the allowance for losses, FDIC uses a separate 
spreadsheet--called the Loan Loss Reserve (LLR) template--for each 
failed institution receivership. For failed institutions resolved 
using a loss-sharing agreement, the estimate of future loss share 
payments is included as one of the resolution expenses included in the 
allowance for losses calculation. 

[12] GAO, Standards for Internal Control in the Federal Government, 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1] 
(Washington, D.C.: November 1999). 

[13] Committee on Sponsoring Organizations of the Treadway Commission, 
Guidance on Monitoring Internal Control Systems, January 2009. 

[14] National Institute of Standards and Technology, Special 
Publication 800-53 (Revision 2), Recommended Security Controls for 
Federal Information Systems, December 2007. 

[End of section] 

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