Financial Audit: Federal Deposit Insurance Corporation Funds'	 
2007 and 2006 Financial Statements (11-FEB-08, GAO-08-416).	 
                                                                 
GAO is required to annually audit the financial statements of the
Deposit Insurance Fund (DIF) and FSLIC Resolution Fund (FRF),	 
which are administered by the Federal Deposit Insurance 	 
Corporation (FDIC). GAO is responsible for obtaining reasonable  
assurance about whether FDIC's financial statements for DIF and  
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 compliance with laws and regulations. Also, GAO is 
responsible for testing FDIC's compliance with selected laws and 
regulations. Created in 1933 to insure bank deposits and promote 
sound banking practices, FDIC plays an important role in	 
maintaining public confidence in the nation's financial system.  
In 1989, legislation to reform the federal deposit insurance	 
system created three funds to be administered by FDIC: the Bank  
Insurance Fund (BIF) and the Savings Association Insurance Fund  
(SAIF), which protect bank and savings deposits, and FRF, which  
was created to close out the business of the former Federal	 
Savings and Loan Insurance Corporation. In accordance with	 
subsequent legislation passed in 2006, FDIC merged the BIF and	 
SAIF into DIF on March 31, 2006.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-416 					        
    ACCNO:   A80649						        
  TITLE:     Financial Audit: Federal Deposit Insurance Corporation   
Funds' 2007 and 2006 Financial Statements			 
     DATE:   02/11/2008 
  SUBJECT:   Accounting standards				 
	     Auditing procedures				 
	     Auditing standards 				 
	     Financial analysis 				 
	     Financial institutions				 
	     Financial management				 
	     Financial statement audits 			 
	     Financial statements				 
	     Funds management					 
	     Internal controls					 
	     Reporting requirements				 
	     Deposit Insurance Fund				 
	     Federal Savings and Loan Insurance 		 
	     Corporation Resolution Fund			 
                                                                 

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GAO-08-416

   

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
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material separately. 

Report to the Congress: 

February 2008: 

financial audit: 

Federal Deposit Insurance Corporation Funds' 2007 and 2006 Financial 
Statements: 

GAO-08-416: 

GAO Highlights: 

Highlights of GAO-08-416, a report to the Congress. 

Why GAO Did This Study: 

GAO is required to annually audit the financial statements of the 
Deposit Insurance Fund (DIF) and FSLIC Resolution Fund (FRF), which are 
administered by the Federal Deposit Insurance Corporation (FDIC). GAO 
is responsible for obtaining reasonable assurance about whether FDICï¿½s 
financial statements for DIF and 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 compliance with laws and 
regulations. Also, GAO is responsible for testing FDICï¿½s compliance 
with selected laws and regulations. 

Created in 1933 to insure bank deposits and promote sound banking 
practices, FDIC plays an important role in maintaining public 
confidence in the nationï¿½s financial system. In 1989, legislation to 
reform the federal deposit insurance system created three funds to be 
administered by FDIC: the Bank Insurance Fund (BIF) and the Savings 
Association Insurance Fund (SAIF), which protect bank and savings 
deposits, and FRF, which was created to close out the business of the 
former Federal Savings and Loan Insurance Corporation. In accordance 
with subsequent legislation passed in 2006, FDIC merged the BIF and 
SAIF into DIF on March 31, 2006. 

What GAO Found: 

In GAOï¿½s opinion, FDIC fairly presented, in all material respects, the 
2007 and 2006 financial statements for the two funds it administersï¿½DIF 
and FRF. Also, in GAOï¿½s opinion, FDIC had effective internal control 
over financial reporting and compliance with laws and regulations for 
each fund. GAO did not find reportable instances of noncompliance with 
the laws and regulations it tested. 

The banking industry faced increased challenges in 2007. The downturn 
in housing markets led to asset-quality problems and volatility in 
financial markets, which hurt banking industry performance and 
threatened the viability of some institutions that had significant 
exposure to higher-risk residential mortgages. It is uncertain how long 
the effects of this downturn will last. In addition to a recorded 
estimated liability of $124 million as of December 31, 2007, for the 
anticipated failure of some DIF insured institutions, FDIC has 
identified additional risk that could result in further estimated loss 
to the DIF of $1.7 billion should potentially vulnerable insured 
institutions ultimately fail. FDIC continues to evaluate the risks to 
affected institutions in light of evolving economic conditions, but the 
impact of such risks on the DIF cannot be reasonably estimated at this 
time. Actual losses, if any, will largely depend on future economic and 
market conditions and could differ materially from FDICï¿½s estimates. 

GAO noted other less significant matters involving FDICï¿½s internal 
controls, including information system controls, and will be reporting 
separately to FDIC management on these matters. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.GAO-08-416]. For more information, contact 
Steven J. Sebastian at (202) 512-3406 or [email protected]. 

[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: 

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 the Financial Statements: 

FSLIC Resolution Fund's Financial Statements: 

Balance Sheet: 

Statement of Income and Accumulated Deficit: 

Statement of Cash Flows: 

Notes to the Financial Statements: 

Appendixes: 

Appendix I: Comments from the Federal Deposit Insurance Corporation: 

Appendix II: 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: 

Transmittal Letter February 11, 2008: 

The President of the Senate: The Speaker of the House of 
Representatives: 

This report presents our opinions on whether the financial statements 
of the Deposit Insurance Fund (DIF) and the FSLIC Resolution Fund (FRF) 
are presented fairly, in all material respects, in conformity with U.S. 
generally accepted accounting principles for the years ended December 
31, 2007, and 2006. These financial statements are the responsibility 
of the Federal Deposit Insurance Corporation (FDIC), the administrator 
of the two funds. This report also presents (1) our opinion on the 
effectiveness of FDIC's internal control over financial reporting and 
compliance with laws and regulations for each of the funds as of 
December 31, 2007, and (2) our evaluation of FDIC's compliance with 
selected laws and regulations during 2007. 

FDIC's insured financial institutions faced increased challenges in 
2007. The downturn in housing markets led to asset-quality problems and 
volatility in financial markets, which hurt banking industry 
performance and threatened the viability of some institutions that had 
significant exposure to higher-risk residential mortgages. It is 
uncertain how long the effects of this downturn will last. In addition 
to a recorded estimated liability of $124 million as of December 31, 
2007, for the anticipated failure of some DIF insured institutions, 
FDIC has identified additional risk that could result in a further 
estimated loss to the DIF of $1.7 billion should potentially vulnerable 
insured institutions ultimately fail. FDIC continues to evaluate the 
risks to affected institutions in light of evolving economic 
conditions, but the impact of such risks on the DIF cannot be 
reasonably estimated at this time. Actual losses, if any, will largely 
depend on future economic and market conditions and could differ 
materially from FDIC's estimates. 

Section 17 of the Federal Deposit Insurance Act, as amended (12 U.S.C. 
1827(d)), requires GAO to conduct an annual audit of DIF and FRF in 
accordance with U.S. generally accepted government auditing standards. 
These provisions also stipulate that GAO report on the results of its 
annual audit of the two funds' financial statements no later than July 
15 of the year following the year under audit, or 6-ï¿½ months after the 
end of the reporting period. However, for the fifth consecutive year, 
and at the request of FDIC management, GAO completed its audits of the 
two funds' financial statements on a significantly accelerated 
reporting time frame. This would not have been possible without the 
cooperation and dedicated efforts of FDIC management and staff. 

We are sending copies of this report to the Chairman and Ranking Member 
of the Senate Committee on Banking, Housing, and Urban Affairs; the 
Chairman and Ranking Member of the House Committee on Financial 
Services; 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.] 

This report was prepared under the direction of Steven J. Sebastian, 
Director, Financial Management and Assurance, who can be reached on 
(202) 512-3406 or [email protected]. If I can be of further 
assistance, please call me at (202) 512-5500. 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: 

David M. Walker: 

Comptroller General of the United States: 

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 2007 and 2006, we found: 

* the financial statements as of and for the years ended December 31, 
2007, and 2006, are presented fairly, in all material respects, in 
conformity with U.S. generally accepted accounting principles; 

* FDIC had effective internal control over financial reporting 
(including safeguarding assets) and compliance with laws and 
regulations for each fund; and: 

* no reportable noncompliance with 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, 2007, and 2006, and its income and fund 
balance and its cash flows for the years then ended. 

As discussed in note 6 to DIF's financial statements, FDIC's insured 
financial institutions faced increased challenges in 2007. The downturn 
in housing markets led to asset-quality problems and volatility in 
financial markets, which hurt banking industry performance and 
threatened the viability of some institutions that had significant 
exposure to higher-risk residential mortgages. It is uncertain how long 
the effects of this downturn will last. In addition to a recorded 
estimated liability of $124 million as of December 31, 2007, for the 
anticipated failure of some DIF insured institutions, FDIC has 
identified additional risk that could result in a further estimated 
loss to the DIF of $1.7 billion should potentially vulnerable insured 
institutions ultimately fail. FDIC continues to evaluate the risks to 
affected institutions in light of evolving economic conditions, but the 
impact of such risks on the DIF cannot be reasonably estimated at this 
time. Actual losses, if any, will largely depend on future economic and 
market conditions and could differ materially from FDIC's estimates. 

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, 2007, and 2006, and its income and 
accumulated deficit and its cash flows for the years then ended. 

Opinion on Internal Control: 

FDIC management maintained, in all material respects, effective 
internal control over financial reporting (including safeguarding 
assets) and compliance as of December 31, 2007, that provided 
reasonable assurance that misstatements, losses, or noncompliance 
material in relation to the financial statements for each fund would be 
prevented or detected 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 (FMFIA). 

We did identify certain control deficiencies during our 2007 audits. 
However, we do not consider these control deficiencies to be 
significant deficiencies.[Footnote 1] We will be reporting separately 
to FDIC management on these matters. 

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, maintaining, and assessing internal 
control to provide reasonable assurance that the broad control 
objectives of FMFIA are met; and (3) complying with applicable laws and 
regulations. 

We are responsible for obtaining reasonable assurance about whether (1) 
the financial statements are presented fairly, in all material 
respects, in conformity with U.S. generally accepted accounting 
principles, and (2) management maintained effective internal control, 
the objectives of which are the following: 

1. financial reporting--transactions are properly recorded, processed, 
and summarized to permit the preparation of financial statements in 
conformity with U.S. generally accepted accounting principles, and 
assets are safeguarded against loss from unauthorized acquisition, use, 
or disposition, and: 

2. compliance with laws and regulations--transactions are executed in 
accordance with laws and regulations that could have a direct and 
material effect on the financial statements. 

We are also responsible for testing compliance with selected provisions 
of laws and regulations that could 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 management; 

* evaluated the overall presentation of the financial statements; 

* obtained an understanding of the entity and its operations, including 
its internal control related to financial reporting (including 
safeguarding assets) and compliance with laws and regulations; 

* tested relevant internal controls over financial reporting and 
compliance, and evaluated the design and operating effectiveness of 
internal control; 

* considered FDIC's process for evaluating and reporting on internal 
control based on criteria established by FMFIA; and: 

* tested compliance with certain laws and regulations, including 
selected provisions of the Federal Deposit Insurance Act, as amended, 
and the Federal Deposit Insurance Reform Act of 2005. 

We did not evaluate all internal controls relevant to operating 
objectives as broadly defined by FMFIA, such as those controls relevant 
to preparing statistical reports and ensuring efficient operations. We 
limited our internal control testing to controls over financial 
reporting and compliance. Because of inherent limitations in internal 
control, misstatements due to error or fraud, losses, or noncompliance 
may nevertheless occur and not be detected. We also caution that 
projecting our evaluation 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 controls 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 could have a direct and material effect on the financial 
statements for the year ended December 31, 2007. 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 work in accordance with U.S. generally accepted 
government auditing standards. 

FDIC Comments and Our Evaluation: 

In commenting on a draft of this report, FDIC's Chief Financial Officer 
(CFO) reported the agency was pleased to receive unqualified opinions 
on the DIF and FRF financial statements and that GAO did not identify 
any material weaknesses or significant deficiencies during the 2007 
audits. FDIC's CFO also expressed appreciation for GAO's recognition of 
FDIC's accomplishments during the 2007 audit year. The CFO added that 
FDIC is dedicated to promoting the highest standard of financial 
management and that FDIC will work diligently to sustain that focus. 
Furthermore, the CFO added that continued improvements in operations 
remain a priority for FDIC. 

The complete text of FDIC's comments is reprinted in appendix I. 

Signed by: 

David M. Walker: 

Comptroller General of the United States: 

February 4, 2008: 

[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; 
2007: $4,244,547; 
2006: $2.953,995. 

Assets: Investments in U.S. Treasury obligations, net: (Note 3): Held-
to-maturity securities; 
2007: $38,015,174; 
2006: $37,184,214. 

Assets: Investments in U.S. Treasury obligations, net: (Note 3): 
Available-for-sale securities; 
2007: $8,572,800; 
2006: $8,958,566. 

Assets: Assessments receivable, net (Note 7); 
2007: $244,581; 
2006: $0. 

Assets: Interest receivable on investments and other assets, net; 
2007: $768,292; 
2006: $747,715. 

Assets: Receivables from resolutions, net (Note 4); 
2007: $808,072; 
2006: $538,991. 

Assets: Property and equipment, net (Note 5); 
2007: $351,861; 
2006: $376,790. 

Total Assets; 
2007: $53,005,327; 
2006: $50,760,271. 

Liabilities: Accounts payable and other liabilities; 
2007: $151,857; 
2006: $154,283. 

Liabilities: Postretirement benefit liability (Note 11); 
2007: $116,158; 
2006: $129,906. 

Liabilities: Contingent liabilities for: (Note 6): Anticipated failure 
of insured institutions; 
2007: $124,276; 
2006: $110,775. 

Liabilities: Contingent liabilities for: (Note 6): Litigation losses; 
2007: $200,000; 
2006: $200,000. 

Total Liabilities; 
2007: $592,291; 
2006: $594,964. 

Commitments and off-balance-sheet exposure (Note 12): 

Fund balance: Accumulated net income; 
2007: $52,034,503; 
2006: $49,929,226. 

Fund balance: Unrealized gain on available-for-sale securities, net 
(Note 3); 
2007: $358,908; 
2006: $233,822. 

Fund balance: Unrealized postretirement benefit gain (Note 11); 
2007: $19,625; 
2006: $2,259. 

Total Fund Balance; 
2007: $52,413,036; 
2006: $50,165,307. 

Total Liabilities and Fund Balance; 
2007: $53,005,327; 
2006: $50,760,271. 

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

[End of table] 

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; 
2007: $2,540,061; 
2006: $2,240,723. 

Revenue: Assessments (Note 7); 
2007: $642,928; 
2006: $31,945. 

Revenue: Exit fees earned (Note 8); 
2007: $0; 
2006: $345,295. 

Revenue: Other revenue; 
2007: $13,244; 
2006: $25,565. 

Total revenue; 
2007: $3,196,233; 
2006: $2,643,528. 

Expenses and Losses: Operating expenses (Note 9); 
2007: $992,570; 
2006: $950,618. 

Expenses and Losses: Provision for insurance losses (Note 10; 
2007: $95,016; 
2006: ($52,097). 

Expenses and Losses: Insurance and other expenses; 
2007: $3,370; 
2006: $5,843. 

Total Expenses and Losses; 
2007: $1,090,956; 
2006: $904,364. 

Net Income; 
2007: $2,105,277; 
2006: $1,739,164. 

Net Income: Unrealized gain/(loss) on available-for-sale securities, 
net (Note 3); 
2007: $125,086; 
2006: ($172,718). 

Net Income: Unrealized postretirement benefit gain (Note 11); 
2007: $17,366; 
2006: $2,259. 

Comprehensive Income; 
2007: $2,247,729; 
2006: $1,568,705. 

Fund Balance-Beginning; 
2007: $50,165,307; 
2006: $48,596,602. 

Fund Balance-Ending; 
2007: $52,413,036; 
2006: $50,165,307. 

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

[End of table] 

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

Dollars in thousands: 

Operating Activities: Net Income; 
2007: $2,105,277; 
2006: $1,739,164. 

Operating Activities: Net Income: Adjustments to reconcile net income 
to net cash provided by operating activities: Amortization of U.S. 
Treasury obligations; 
2007: $571,267; 
2006: $599,274. 

Operating Activities: Net Income: Adjustments to reconcile net income 
to net cash provided by operating activities: Treasury inflation-
protected securities (TIPS) inflation adjustment; 
2007: ($313,836); 
2006: ($109,394). 

Operating Activities: Net Income: Adjustments to reconcile net income 
to net cash provided by operating activities: Depreciation on property 
and equipment; 
2007: $63,115; 
2006: $52,919. 

Operating Activities: Net Income: Adjustments to reconcile net income 
to net cash provided by operating activities: Loss on retirement of 
property and equipment; 
2007: $153; 
2006: $0. 

Operating Activities: Net Income: Adjustments to reconcile net income 
to net cash provided by operating activities: Provision for insurance 
losses; 
2007: $95,016; 
2006: ($52,097). 

Operating Activities: Net Income: Adjustments to reconcile net income 
to net cash provided by operating activities: Terminations/adjustments 
of work-in-process accounts; 
2007: $0; 
2006: $433. 

Operating Activities: Net Income: Adjustments to reconcile net income 
to net cash provided by operating activities: Exit fees learned; 
2007: $0; 
2006: ($345,295). 

Operating Activities: Net Income: Adjustments to reconcile net income 
to net cash provided by operating activities: Unrealized gain on 
postretirement benefits; 
2007: $17,366; 
2006: $0. 

Operating Activities: Change in Operating Assets and Liabilities: 
Decrease in unamoritized premium & discount of U.S. Treasury 
obligations (restricted); 
2007: $0; 
2006: $1,359. 

Operating Activities: Change in Operating Assets and Liabilities: 
(Increase) in assessments receivable, net; 
2007: ($244,581); 
2006: $0. 

Operating Activities: Change in Operating Assets and Liabilities: 
(Increase) in interest receivable and other assets; 
2007: ($20,442); 
2006: ($14,635). 

Operating Activities: Change in Operating Assets and Liabilities: 
(Increase)/Decrease in receivables from resolutions; 
2007: ($350,309); 
2006: $147,258. 

Operating Activities: Change in Operating Assets and Liabilities: 
(Decrease) in accounts payable and other liabilities; 
2007: ($39,580); 
2006: ($166,822). 

Operating Activities: Change in Operating Assets and Liabilities: 
(Decrease)/Increase in postretirement benefit liability; 
2007: ($13,748); 
2006: $129,906. 

Operating Activities: Change in Operating Assets and Liabilities: 
Increase in exit fees and investment proceeds held in escrow; 
2007: $0; 
2006: $3,639. 

Net Cash Provided by Operating Activities; 
2007: $1,869,698; 
2006: $1,985,709. 

Increasing Activities: Provided by: Maturity of U.S. Treasury 
obligations, held-to-maturity; 
2007: $6,401,000; 
2006: $5,955,000. 

Increasing Activities: Provided by: Maturity of U.S. Treasury 
obligations, available-for-sale; 
2007: $1,225,000; 
2006: $845,000. 

Increasing Activities: Used by: Purchase of property and equipment; 
2007: ($1,607); 
2006: ($11,721). 

Increasing Activities: Used by: Purchase of U.S. Treasury obligations, 
held-to-maturity; 
2007: ($7,706,117); 
2006: ($9,050,372). 

Increasing Activities: Used by: Purchase of U.S. Treasury obligations, 
available-for-sale; 
2007: ($497,422); 
2006: ($0). 

Net Cash Used by Investing Activities; 
2007: ($579,146); 
2006: ($2,262,093). 

Net Increase/(Decrease) in Cash and Cash Equivalents; 
2007: ($1,290,552); 
2006: ($276,384). 

Cash and Cash Equivalents-Beginning; 
2007: ($2,953,995); 
2006: ($3,230,379). 

Cash and Cash Equivalents-Ending; 
2007: ($4,244,547); 
2006: ($2,953,995). 

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

[End of table] 

Notes to the Financial Statements: Deposit Insurance Fund: December 31, 
2007 and 2006: 

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 nationï¿½s 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. An active institutionï¿½s primary federal 
supervisor is generally determined by the institutionï¿½s 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 
thrifts are supervised by the Office of Thrift Supervision. 

The Deposit Insurance Fund (DIF) was established on March 31, 2006 as a 
result of the merger of the Bank Insurance Fund (BIF) and the Savings 
Association Insurance Fund (SAIF). The FDIC is the administrator of the 
DIF and the FSLIC Resolution Fund (FRF). These funds are maintained 
separately to carry out their respective mandates. 

The DIF is an insurance fund responsible for protecting insured bank 
and thrift depositors from loss due to institution failures. 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. 

Recent Legislation: 

The Federal Deposit Insurance Reform Act of 2005 (Title II, Subtitle B 
of Public Law 109-171, 120 Stat. 9) and the Federal Deposit Insurance 
Reform Conforming Amendments Act of 2005 (Public Law 109-173, 119 Stat. 
3601) were enacted in February 2006. Pursuant to this legislation 
(collectively, the Reform Act), the BIF and the SAIF were merged as 
discussed above. Additionally, as a result of the Reform Act, the FDIC 
immediately increased coverage for certain retirement accounts to 
$250,000 and required the deposit of funds into the DIF for SAIF-member 
exit fees that had been restricted and held in escrow. Furthermore, the 
Reform Act: 1) provides the FDIC with greater discretion to charge 
insurance assessments and to impose more sensitive risk-based pricing; 
2) annually permits the designated reserve ratio to vary between 1.15 
and 1.50 percent of estimated insured deposits, thereby eliminating the 
statutorily fixed designated reserve ratio of 1.25 percent; 3) 
generally requires the declaration and payment of dividends from the 
DIF if the reserve ratio of the DIF equals or exceeds 1.35 percent of 
estimated insured deposits at the end of a calendar year; 4) grants a 
one-time assessment credit for each eligible insured depository 
institution or its successor based on an institutionï¿½s proportionate 
share of the aggregate assessment base of all eligible institutions at 
December 31, 1996; and 5) allows the FDIC to increase all deposit 
insurance coverage, under certain circumstances, to reflect inflation 
every five years beginning January 1, 2011. See Note 7 for additional 
discussion on the reforms related to Assessments. 

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. 

The DIF is primarily funded from: 1) interest earned on investments in 
U.S. Treasury obligations and 2) deposit insurance assessments. 
Additional funding sources, if necessary, are borrowings from the U.S. 
Treasury, Federal Financing Bank, Federal Home Loan Banks, and insured 
depository institutions. The FDIC has borrowing authority from the U.S. 
Treasury up to $30 billion and a Note Purchase Agreement with the 
Federal Financing Bank not to exceed $40 billion to enhance DIFï¿½s 
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 U.S. Treasury. The MOL for 
the DIF was $83.6 billion and $79.7 billion as of December 31, 2007 and 
2006, respectively. 

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 DIF assets and liabilities to ensure that 
receivership proceeds are distributed in accordance with applicable 
laws and regulations. Accordingly, 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 DIF and are presented in 
conformity with U.S. generally accepted accounting principles (GAAP). 
These statements do not include reporting for assets and liabilities of 
closed banks and thrifts for which the FDIC acts as receiver. Periodic 
and final accountability reports of the FDIC's activities as receiver 
are furnished to courts, supervisory authorities, and others as 
required.

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, the estimated 
losses for anticipated failures and litigation, and the postretirement 
benefit obligation.

Cash Equivalents: 

Cash equivalents are short-term, highly liquid investments with 
original maturities of three months or less. Cash equivalents consist 
primarily of Special U.S. Treasury Certificates. 

Investment in U.S. Treasury Obligations: 

DIF 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 U.S. 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 Debtï¿½s 
Government Account Series (GAS) program. 

DIFï¿½s investments in U.S. Treasury obligations are either classified as 
held-to-maturity or available-for-sale based on the FDICï¿½s assessment 
of funding needs. Securities designated as held-to-maturity are shown 
at amortized cost. Amortized cost is the face value of securities plus 
the unamortized premium or less the unamortized discount. Amortizations 
are computed on a daily basis from the date of acquisition to the date 
of maturity, except for callable U.S. Treasury securities, which are 
amortized to the first call date. Securities designated as available-
for-sale are shown at market value, which approximates fair value. 
Unrealized gains and losses are included in Comprehensive Income. 
Realized gains and losses are included in the Statement of Income and 
Fund Balance as components of Net Income. Income on both types of 
securities is calculated and recorded on a daily basis using the 
effective interest method. 

Revenue Recognition for Assessments: 

Prior to 2007, insurance assessments were fully paid in advance on the 
last day of each quarter for the next quarter and recorded as unearned 
assessment revenue. One-third of the amount was recognized monthly as 
assessment income during the quarter in accordance with GAAP. 

The Reform Act granted the FDIC discretion in the manner assessments 
are determined and collected from insured depository institutions. As a 
result, the FDIC now collects deposit insurance premiums at the end of 
the quarter following the period of insurance coverage. Consequently, 
assessment revenue for the insured period is recognized based on an 
estimate. The estimate is derived from an institutionï¿½s risk-based 
assessment rate and assessment base for the prior quarter; adjusted for 
the current quarterï¿½s available assessment credits, any changes in 
supervisory examination and debt issuer ratings for larger 
institutions, and a modest deposit insurance growth factor. The 
estimated revenue amounts are adjusted when actual premiums are 
collected at quarter end. Total assessment income recognized for the 
year includes estimated revenue for the October- December assessment 
period. See Note 7 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 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 life.

Disclosure about Recent Accounting Pronouncements: 

The Financial Accounting Standards Board (FASB) issued Statement of 
Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements, 
in September 2006. SFAS No. 157 defines fair value, establishes a 
framework for measuring fair value in GAAP, and expands disclosures 
about fair value measurements. The Statement does not require any new 
fair value measurements. FDIC will adopt SFAS No. 157 effective January 
1, 2008 on a prospective basis. Management does not expect the 
Statement to have a material impact on the financial statements. 

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

As of December 31, 2007 and 2006, investments in U.S. Treasury 
obligations, net, were $46.6 billion and $46.1 billion, respectively. 
As of December 31, 2007, the DIF held $9.6 billion 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). Additionally, the DIF held $4.3 billion of callable 
U.S. Treasury bonds at December 31, 2007. Callable U.S. Treasury bonds 
may be called five years prior to the respective bonds' stated maturity 
on their semi-annual coupon payment dates upon 120 days notice.

U.S. Treasury Obligations as of December 31, 2007: 

Dollars in Thousands. 

Maturity(a): Held-to-Maturity: U.S. Treasury notes and bonds: Within 1 
year; 
Yield at Purchase (b): 4.49%; 
Face Value: $5,600,000; 
Net Carrying Amount: $5,651,699; 
Unrealized Holding Gains: $30,313; 
Unrealized Holding Losses (c): ($469); 
Market Value: $5,681,543. 

Maturity(a): Held-to-Maturity: U.S. Treasury notes and bonds: After 1 
year through 5 years; 
Yield at Purchase (b): 4.50%; 
Face Value: $12,920,000; 
Net Carrying Amount: $13,310,856; 
Unrealized Holding Gains: $416,031; 
Unrealized Holding Losses (c): ($0); 
Market Value: $13,726,887. 

Maturity(a): Held-to-Maturity: U.S. Treasury notes and bonds: After 5 
years through 10 years; 
Yield at Purchase (b): 4.81%; 
Face Value: $11,550,000; 
Net Carrying Amount: $12,856,888; 
Unrealized Holding Gains: $764,723; 
Unrealized Holding Losses (c): ($0); 
Market Value: $13,621,611. 

Maturity(a): Held-to-Maturity: U.S. Treasury notes and bonds: After 10 
years; 
Yield at Purchase (b): 5.02%; 
Face Value: $3,500,000; 
Net Carrying Amount: $4,626,945; 
Unrealized Holding Gains: $286,889; 
Unrealized Holding Losses (c): ($0); 
Market Value: $4,913,834. 

Maturity(a): Held-to-Maturity: U.S. Treasury inflation-protected 
securities: Within 1 year; 
Yield at Purchase (b): 3.86%; 
Face Value: $258,638; 
Net Carrying Amount: $258,620; 
Unrealized Holding Gains: $349; 
Unrealized Holding Losses (c): ($0); 
Market Value: $258,969. 

Maturity(a): Held-to-Maturity: U.S. Treasury inflation-protected 
securities: After 1 year through 5 years; 
Yield at Purchase (b): 3.16%; 
Face Value: $1,288,950; 
Net Carrying Amount: $1,310,166; 
Unrealized Holding Gains: $52,927; 
Unrealized Holding Losses (c): ($0); 
Market Value: $1,363,093. 

Maturity(a): Maturity: U.S. Treasury inflation-protected securities: 
Total; 
Yield at Purchase (b): [Empty]; 
Face Value: $35,117,588; 
Net Carrying Amount: $38,015,174; 
Unrealized Holding Gains: $1,551,232; 
Unrealized Holding Losses (c): ($469); 
Market Value: $39,565,937. 

Maturity(a): Available-for-Sale: U.S. Treasury notes and bonds: After 1 
year through 5 years; 
Yield at Purchase (b): 4.79%; 
Face Value: $500,000; 
Net Carrying Amount: $498,260; 
Unrealized Holding Gains: $10,100; 
Unrealized Holding Losses (c): ($0); 
Market Value: $508,360. 

Maturity(a): Available-for-Sale: U.S. Treasury inflation-protected 
securities: Within 1 year; 
Yield at Purchase (b): 3.92%; 
Face Value: $1,700,545; 
Net Carrying Amount: $1,700,397; 
Unrealized Holding Gains: $2,325; 
Unrealized Holding Losses (c): ($0); 
Market Value: $1,702,722. 

Maturity(a): Available-for-Sale: U.S. Treasury inflation-protected 
securities: After 1 year through 5 years; 
Yield at Purchase (b): 3.75%; 
Face Value: $6,004,277; 
Net Carrying Amount: $6,015,235; 
Unrealized Holding Gains: $346,483; 
Unrealized Holding Losses (c): ($0); 
Market Value: $6,361,718. 

Maturity(a): Available-for-Sale: U.S. Treasury inflation-protected 
securities: Total; 
Yield at Purchase (b): [Empty]; 
Face Value: $8,204,822; 
Net Carrying Amount: $8,213,892; 
Unrealized Holding Gains: $358,908; 
Unrealized Holding Losses (c): ($0); 
Market Value: $8,572,800. 

Maturity(a): Total Investment in U.S. Treasury Obligations, Net: Total; 
Yield at Purchase (b): [Empty]; 
Face Value: $43,322,410; 
Net Carrying Amount: $46,229,066; 
Unrealized Holding Gains: $1,910,140; 
Unrealized Holding Losses (c): ($469); 
Market Value: $48,138,737. 

(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 2007. 

(c)All unrealized losses occurred as a result of changes in market 
interest rates. FDIC has the ability and intent to hold the related 
securities until maturity. As a result, all unrealized losses are 
considered temporary. However, all of the $469 thousand reported as 
total unrealized losses is recognized as unrealized losses occuring 
over a period of 12 months or longer with a market value of $1.1 
billion applied to the affected securities.

[End of table] 

U.S. Treasury Obligations at December 31, 2006: 

Dollars in Thousands. 

Maturity(a): Held-to-Maturity: U.S. Treasury notes and bonds: Within 1 
year; 
Yield at Purchase (b): 4.58%; 
Face Value: $6,401,000; 
Net Carrying Amount: $6,448,905; 
Unrealized Holding Gains: $3,389; 
Unrealized Holding Losses (c): ($20,704); 
Market Value: $6,431,590. 

Maturity(a): Held-to-Maturity: U.S. Treasury notes and bonds: After 1 
year through 5 years; 
Yield at Purchase (b): 4.47%; 
Face Value: $15,500,000; 
Net Carrying Amount: $16,276,424; 
Unrealized Holding Gains: $91,703; 
Unrealized Holding Losses (c): ($196,635); 
Market Value: $16,171,492. 

Maturity(a): Held-to-Maturity: U.S. Treasury notes and bonds: After 5 
years through 10 years; 
Yield at Purchase (b): 4.68%; 
Face Value: $9,025,000; 
Net Carrying Amount: $9,690,085; 
Unrealized Holding Gains: $36,025; 
Unrealized Holding Losses (c): ($42,270); 
Market Value: $9,683,840. 

Maturity(a): Held-to-Maturity: U.S. Treasury notes and bonds: After 10 
years; 
Yield at Purchase (b): 5.01%; 
Face Value: $2,445,000; 
Net Carrying Amount: $3,247,814; 
Unrealized Holding Gains: $57,589; 
Unrealized Holding Losses (c): ($3,227); 
Market Value: $3,302,176. 

Maturity(a): Held-to-Maturity: U.S. Treasury inflation-protected 
securities: After 1 year through 5 years; 
Yield at Purchase (b): 3.83%; 
Face Value: $926,751; 
Net Carrying Amount: $926,844; 
Unrealized Holding Gains: $21,185; 
Unrealized Holding Losses (c): ($0); 
Market Value: $948,029. 

Maturity(a): Held-to-Maturity: U.S. Treasury inflation-protected 
securities: After 5 year through 10 years; 
Yield at Purchase (b): 2.41%; 
Face Value: $568,345; 
Net Carrying Amount: $594,142; 
Unrealized Holding Gains: $0; 
Unrealized Holding Losses (c): ($778); 
Market Value: $593,364. 

Maturity(a): Maturity: U.S. Treasury inflation-protected securities: 
Total; 
Yield at Purchase (b): [Empty]; 
Face Value: $34,866,096; 
Net Carrying Amount: $37,184,214; 
Unrealized Holding Gains: $209,891; 
Unrealized Holding Losses (c): ($263,614); 
Market Value: $37,130,491. 

Maturity(a): Available-for-Sale: U.S. Treasury notes and bonds: Within 
1 year; 
Yield at Purchase (b): 3.85%; 
Face Value: $1,225,000; 
Net Carrying Amount: $1,269,835; 
Unrealized Holding Gains: $0; 
Unrealized Holding Losses (c): ($9,208); 
Market Value: $1,260,627. 

Maturity(a): Available-for-Sale: U.S. Treasury inflation-protected 
securities: After 1 through 5 years; 
Yield at Purchase (b): 3.80%; 
Face Value: $7,443,478; 
Net Carrying Amount: $7,454,909; 
Unrealized Holding Gains: $243,030; 
Unrealized Holding Losses (c): ($0); 
Market Value: $7,697,939. 

Maturity(a): Available-for-Sale: U.S. Treasury inflation-protected 
securities: Total; 
Yield at Purchase (b): [Empty]; 
Face Value: $8,668,478; 
Net Carrying Amount: $8,724,744; 
Unrealized Holding Gains: $243,030; 
Unrealized Holding Losses (c): ($9,208); 
Market Value: $8,958,566. 

Maturity(a): Total Investment in U.S. Treasury Obligations, Net: Total; 
Yield at Purchase (b): [Empty]; 
Face Value: $43,534,574; 
Net Carrying Amount: $45,908,958; 
Unrealized Holding Gains: $452,921; 
Unrealized Holding Losses (c): ($272,822); 
Market Value: $46,089,057. 

(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 2007. 

(c)All unrealized losses occurred as a result of changes in market 
interest rates. FDIC has the ability and intent to hold the related 
securities until maturity. As a result, all unrealized losses are 
considered temporary. However, all of the $469 thousand reported as 
total unrealized losses is recognized as unrealized losses occuring 
over a period of 12 months or longer with a market value of $1.1 
billion applied to the affected securities.

[End of table] 

As of December 31, 2007 and 2006, the unamortized premium, net of the 
unamortized discount, was $2.9 billion and $2.4 billion, respectively.

4. Receivables From Resolutions, Net: 

The receivables from resolutions include payments made by the DIF 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 DIF receiverships are the main source of 
repayment of the DIFï¿½s receivables from closed banks and thrifts. As of 
December 31, 2007, there were 22 active receiverships, including three 
failures in the current year. 

As of December 31, 2007 and 2006, DIF receiverships held assets with a 
book value of $1.2 billion and $655 million, respectively (including 
cash, investments, and miscellaneous receivables of $363 million and 
$348 million at December 31, 2007 and 2006, respectively). The 
estimated cash recoveries from the management and disposition of assets 
that are used to derive the allowance for losses are based on a 
sampling of receivership assets in liquidation. Sampled assets were 
generally valued by estimating future cash recoveries, net of applicable
liquidation cost estimates, and then discounted using current market-
based risk factors applicable to a given assetï¿½s type and quality. 
Resultant recovery estimates were extrapolated to the nonsampled
assets in order to derive the allowance for loss on the receivable. 
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 DIFï¿½s actual
recoveries to vary from current estimates.

Receivables From Resolutions, Net at December 31: 

Dollars in Thousands. 

Receivables from closed banks; 
2007: $4,991,003; 
2006: $4,650,025. 

Allowance for losses; 
2007: ($4,182,931); 
2006: ($4,111,034). 

Total; 
2007: $808,072; 
2006: $538,991. 

[End of table] 

As of December 31, 2007, the DIF allowance for loss was $4.18 billion, 
representing 84 percent of the gross receivable. Of the remaining 16 
percent of the gross receivable, the amount of credit risk is limited 
since 60 percent of the $808 million net receivable will be repaid from
receivership cash, investments, and a promissory note fully secured by 
a letter of credit. The majority of the remaining 40 percent will be 
repaid from assets classified as or supported by real estate mortgages. 
Although estimated asset recoveries are regularly evaluated, the impact 
of any additional credit risk exposure, due to ongoing conditions in 
the housing market, is uncertain at this time. 

5. Property and Equipment, Net: 

Property and Equipment, Net at December 31: 

Dollars in Thousands. 

Land; 
2007: $37,352; 
2006: $37,352. 

Buildings (include leasehold improvements); 
2007: $276,626; 
2006: $248,871. 

Application Software (includes work-in process); 
2007: $145,693; 
2006: $232,206. 

Furniture, fixtures, and equipment; 
2007: $71,138; 
2006: $145,635. 

Accumulated depreciation; 
2007: ($178,948); 
2006: ($323,274). 

Total; 
2007: $351,861; 
2006: $376,790. 

[End of table] 

The depreciation expense was $63 million and $53 million for December 
31, 2007 and 2006, respectively. 

6. 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 within one year of the 
reporting date, absent some favorable event such as obtaining
additional capital or merging, when the liability becomes 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. In addition, 
institution-specific analysis is performed on those institutions where 
failure is imminent absent institution management resolution of 
existing problems, or where additional information is available that 
may affect the estimate of losses. As of December 31, 2007 and 2006, the
contingent liabilities for anticipated failure of insured institutions 
were $124.3 million and $110.8 million, respectively, including an 
estimated liability for one small institution that failed on January 
25, 2008. 

In addition to these recorded contingent liabilities, the FDIC has 
identified additional 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 $1.7 
billion. The actual losses if any will largely depend on future 
economic and market conditions and could differ materially from this 
estimate. During 2007, an increasingly difficult economic and credit 
environment challenged the soundness and profitability of some FDIC-
insured institutions. The downturn in housing markets led to asset-
quality problems and volatility in financial markets, which hurt banking
industry performance and threatened the viability of some institutions 
that had significant exposure to higher risk residential mortgages. It 
is uncertain how long the effects of this downturn will last. While 
supervisory and market data suggest that the banking industry will
continue to experience elevated levels of stress over the coming year, 
as of September 30, 2007, 99% of insured institutions met the highest 
regulatory capital (ï¿½well capitalizedï¿½) standard. The FDIC continues to 
evaluate the risks to affected institutions in light of evolving 
economic conditions; however, the impact of such risks on the insurance 
fund cannot be reasonably estimated at this time. 

Litigation Losses: 

The DIF records an estimated loss for unresolved legal cases to the 
extent that those losses are considered probable and reasonably 
estimable. In addition to the $200 million recorded as probable, the 
FDIC has determined that losses from unresolved legal cases totaling 
$0.6 million are reasonably possible.

Other Contingencies: 

Representations and Warranties: 

As part of the FDICï¿½s efforts to maximize the return from the sale of 
assets from bank and thrift resolutions, representations and 
warranties, and guarantees were offered on certain loan sales. In
general, the guarantees, representations, and warranties on loans sold 
relate to the completeness and accuracy of loan documentation, the 
quality of the underwriting standards used, the accuracy
of the delinquency status when sold, and the conformity of the loans 
with characteristics of the pool in which they were sold. The total 
amount of loans sold subject to unexpired representations
and warranties, and guarantees was $8.1 billion as of December 31, 
2007. There were no contingent liabilities from any of the outstanding 
claims asserted in connection with representations and warranties at 
December 31, 2007 and 2006, respectively. 

In addition, future losses could be incurred until the contracts 
offering the representations and warranties, and guarantees have 
expired, some as late as 2032. Consequently, the FDIC believes
it is possible that additional 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. 

7. Assessments: 

The Federal Deposit Insurance Corporation Improvement Act of 1991 
(FDICIA) required the FDIC to establish a risk-based assessment system, 
charging higher rates to those insured depository institutions that 
posed greater risks to the DIF. To arrive at a risk-based assessment
for a particular institution, the FDIC placed each institution in one 
of nine risk categories based on capital ratios and supervisory 
examination data. Based on FDICï¿½s evaluation of the institutions under 
the risk-based premium system and due to the limitations imposed by the
Deposit Insurance Funds Act of 1996 (DIFA) and the health of the 
banking and thrift industries, most institutions were not charged an 
assessment for a number of years. In addition, the FDIC was required by 
statute to maintain the insurance funds at a designated reserve ratio 
(DRR) of not less than 1.25 percent of estimated insured deposits (or a 
higher percentage as circumstances warranted). 

Effective January 1, 2007, the Reform Act continues to require a risk-
based assessment system and allows the FDIC discretion in defining 
risk. By regulation, the FDIC has consolidated the number of assessment 
risk categories from nine to four. The four new categories continue to 
be defined based upon supervisory and capital evaluations. Other 
significant changes mandated by the Reform Act and the implementing 
regulations: 

* require payment of assessments by all insured depository 
institutions, eliminating the restriction on assessments for the best-
rated institutions;

* grant a one-time assessment credit of approximately $4.7 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; 

* establish a range for the DRR from 1.15 to 1.50 percent of estimated 
insured deposits and eliminate the fixed DRR of 1.25 percent. The FDIC 
is required to annually publish the DRR and has, by regulation, set the 
DRR at 1.25 percent for 2008. As of September 30, 2007, the DIF reserve 
ratio was 1.22% of estimated insured deposits; 

* require the FDIC to adopt a DIF restoration plan to return the 
reserve ratio to 1.15 percent generally within five years, if the 
reserve ratio falls below 1.15 percent or is expected to fall below 
1.15 percent within six months; 

* require the FDIC to annually determine if a dividend should be paid, 
based on the statutory requirement generally to declare dividends if 
the reserve ratio exceeds 1.35 percent at the end of a calendar year. 
The Reform Act permits dividends for one-half of the amount required to 
maintain the reserve ratio at 1.35 percent when the reserve ratio is
between 1.35 and 1.50 percent and all amounts required to maintain the 
reserve ratio at 1.50 percent when the reserve ratio exceeds 1.50 
percent. 

The assessment rate averaged approximately 5.4 cents and .05 cents per 
$100 of assessable deposits for 2007 and 2006, respectively. At 
December 31, 2007, the "Assessments Receivable, net" line item of $245 
million represents the estimated gross premiums due from insured
depository institutions for the fourth quarter of the year, net of $708 
million in estimated onetime assessment credits. The actual deposit 
insurance assessments for the fourth quarter will be billed and 
collected at the end of the first quarter of 2008. During 2007 and 
2006, $643 million and $32 million were recognized as assessment income 
from institutions, respectively. 

Assessments Revenue for the Year Ended December 31: 

Dollars in Thousands. 

Gross assessments; 
2007: $3,730,886. 

Less: One-time assessment credits applied; 
2007: ($3,087,958). 

Assessment Revenue; 
2007: $642,928. 

[End of table] 

Of the $4.7 billion in one-time assessment credits granted, $1.6 
billion (34 percent) remained as of December 31, 2007. The use of 
assessment credits is limited to no more than 90 percent of the gross 
assessments for assessment periods that provide deposit insurance 
coverage in years 2008 through 2010. Credits are also restricted when 
the reserve ratio is less than 1.15 percent and for institutions that 
are not adequately capitalized or exhibit financial, operational or
compliance weaknesses. The credits can only be used to offset future 
deposit insurance assessments and, therefore, do not represent a 
liability to the DIF. They are transferable among institutions, do not 
expire, and cannot be used to offset Financing Corporation (FICO) 
payments. 

Assessments continue to be levied on institutions for payments of the 
interest on obligations issued by the FICO. The FICO was established as 
a mixed-ownership government corporation to function solely as a 
financing vehicle for the 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 2007 and 2006, $785 million and $788 million, 
respectively, were collected and remitted to the FICO.

8. Exit Fees Earned: 

From the early to mid-1990s, the SAIF collected entrance and exit fees 
for conversion transactions when an insured depository institution 
converted from the BIF to the SAIF (resulting in an entrance fee) or 
from the SAIF to the BIF (resulting in an exit fee). The exit fees and 
interest earned were held in escrow pending determination of ownership. 
As a result, the SAIF did not recognize exit fees or any interest 
earned as revenue. The Reform Act removed the restriction on SAIF-
member exit fees held in escrow and the funds were deposited into the 
general (unrestricted) fund of the DIF. The exit fees plus earned 
interest, a total of $345 million, were recognized as revenue at their 
carrying value for 2006. 

9. Operating Expenses: 

Operating expenses were $993 million for 2007, compared to $951 million 
for 2006. The chart below lists the major components of operating 
expenses. 

Operating Expenses for the Years Ended December 31: 

Dollars in Thousands. 

Salaries and benefits; 
2007: $640,294; 
2006: $619,452. 

Outside services; 
2007: $137,812; 
2006: $124,045. 

Travel; 
2007: $55,281; 
2006: $49,408. 

Buildings and leased space; 
2007: $61,377; 
2006: $65,929. 

Software/Hardware maintenance; 
2007: $28,542;
2006: $27,139. 

Depreciation of property and equipment; 
2007: $63,115; 
2006: $52,919. 

Other; 
2007: $23,640; 
2006: $22,124. 

Services billed to receiverships; 
2007: ($17,491); 
2006: ($10,398.)

Total; 
2007: $992,570; 
2006: $950,618. 

10. Provision for Insurance Losses: 

Provision for insurance losses was a positive $95 million for 2007 and 
a negative $52 million for 2006. The following chart lists the major 
components of the provision for insurance losses. 

Provision for Insurance Losses for the Years Ended December 31: 

Dollars in Thousands. 

Valuation Adjustments: Closed banks and thrifts; 
2007: $81,229; 
2006: $(152,776). 

Valuation Adjustments: Other assets; 
2007: $286; 
2006: $(4,230). 

Total Valuation Adjustments; 
2007: $81,515; 
2006: $(157,006). 

Contingent Liabilities Adjustments: Anticipated failure of insured 
institutions; 
2007: $13,501; 
2006: $105,409. 

Contingent Liabilities Adjustments: Litigation losses; 
2007: $0; 
2006: $(500).

Total Contingent Liabilities Adjustments; 
2007: $13,501; 
2006: $104,909. 

Total; 
2007: $95,016; 
2006: $(52,097). 

[End of table] 

11. 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 Thrift Savings Plan (TSP), 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; 
2007: $6,698; 
2006: $6,808. 

Federal Employees Retirement System (Basic Benefit); 
2007: $40,850; 
2006: $38,915. 

FDIC Savings Plan; 
2007: $21,008; 
2006: $20,681. 

Federal Thrift Savings Plan; 
2007: $15,938; 
2006: $15,328. 

Severance Pay; 
2007: $59; 
2006: $39. 

Total; 
2007: $84,553; 
2006: $81,771. 

[End of table] 

Postretirement Benefits Other Than Pensions: 

The DIF has no postretirement 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 retireeï¿½s health insurance
premiums. 

The FDIC provides certain life and dental insurance coverage for its 
eligible retirees, the retireesï¿½ beneficiaries, and covered dependents. 
Retirees eligible for life and dental insurance coverage
are those who have qualified due to: 1) 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 directpay plans. For the dental coverage, 
retirees are responsible for a portion of the dental premium. 

The DIF 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 planï¿½s benefit liability is equal to the 
accumulated postretirement benefit obligation. At December 31, 2007 and 
2006, the liability was $116.2 million and $129.9 million, respectively,
which is recognized in the ï¿½Postretirement benefit liabilityï¿½ 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 
$19.6 million and $2.3 million at December 31, 2007 and 2006, 
respectively. These amounts are reported as accumulated other 
comprehensive income in the ï¿½Unrealized postretirement benefit gainï¿½ 
line item on the Balance Sheet. 

The DIFï¿½s expenses for postretirement benefits for 2007 and 2006 were 
$7.2 million and $9.0 million, respectively, which are included in the 
current and prior yearï¿½s operating expenses on the Statement of Income 
and Fund Balance. The changes in the actuarial gains/losses and prior
service costs/credits for 2007 and 2006 of $17.4 million and $2.3 
million, respectively, are reported as other comprehensive income in 
the ï¿½Unrealized postretirement benefit gainï¿½ line item. Key actuarial 
assumptions used in the accounting for the plan include the discount 
rate of 6 percent, the rate of compensation increase of 3.45 percent, 
and the dental coverage trend rate of 6.10 percent. The discount rate 
of 6 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. For the year ended December 31, 2007, the 
discount rate was increased by 1.25 percent from the rate used in 2006, 
resulting in a decrease in the benefit liability of $24.3 million.

12. Commitments and Off-Balance-Sheet Exposure: 

Commitments: 

Leased Space: 

The FDICï¿½s lease commitments total $63.7 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 
$22 million and $30 million for the periods ended December 31, 2007 and 
2006, respectively. 

Leased Space Commitments: 

Dollars in Thousands. 

2008; 
$18,855. 

2009; 
$15,529. 

2010; 
$11,165. 

2011; 
$8,488. 

2012; 
$5,999. 

2013/Thereafter; 
$3,637. 

Off-Balance-Sheet Exposure: 

Deposit Insurance: 

As of September 30, 2007, the estimated insured deposits for DIF were 
$4.2 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. 

13. Disclosures About the Fair Value of Financial Instruments: 

Cash equivalents are short-term, highly liquid investments and are 
shown at fair value. The fair market value of the investment in U.S. 
Treasury obligations is disclosed in Note 3 and is based on current 
market prices. The carrying amount of interest receivable on 
investments, short-term receivables, and accounts payable and other 
liabilities approximates their fair market value, due to their short 
maturities and/or comparability with current interest rates.

[End of section] 

The net receivables from resolutions primarily include the DIFï¿½s 
subrogated claim arising from payments to insured depositors. The 
receivership assets that will ultimately be used to pay the corporate 
subrogated claim are valued using discount rates that include 
consideration of market risk. These discounts ultimately affect the 
DIFï¿½s 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 receivership assets (see Note 4), such receivership 
valuation is not equivalent to the valuation of the corporate claim. 
Since the corporate claim is unique, not intended for sale to the 
private sector, and has no established market, it is not practicable to 
estimate a fair market value. 

The FDIC believes that a sale to the private sector of the corporate 
claim would require indeterminate, but substantial, discounts for an 
interested party to profit from these assets because of credit and 
other risks. In addition, the timing of receivership payments to the 
DIF on the subrogated claim does not necessarily correspond with the 
timing of collections on receivership assets. Therefore, the effect of 
discounting used by receiverships should not necessarily be viewed as 
producing an estimate of market value for the net receivables from 
resolutions. 

[End of section] 

FSCLIC 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; 
2007: $3,617,133; 
2006: $3,616,466. 

Assets: Receivables from thrift resolutions and other assets, net (Note 
3); 
2007: $34,812; 
2006: $36,730. 

Assets: Receivables from U.S. Treasury for goodwill judgments (Note 4); 
2007: $35,350; 
2006: $251,827. 

Total Assets; 
2007: $3,687,295; 
2006: $3,905,023. 

Liabilities: Accounts payable and other liabilities; 
2007: $4,276; 
2006: $5,497. 

Liabilities: Contingent liabilities for litigation losses and other 
(Note 4); 
2007: $5,350; 
2006: $279,327. 

Total Liabilities; 
2007: $39,626; 
2006: $284,824. 

Resolution Equity (Note 5): Contributed capital; 
2007: $127,417,582; 
2006: $127,453,996. 

Resolution Equity (Note 5): Accumulated deficit; 
2007: ($123,769,913); 
2006: ($123,833,797). 

Total Resolution Equity; 
2007: $3,647,669; 
2006: $3,620,199. 

Total Liabilities and Resolution Equity; 
2007: $3,687,295; 
2006: $3,905,023. 

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

[End of table] 

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; 
2007: $156,034; 
2006: $151,648. 

Revenue: Other revenue; 
2007: $31,558; 
2006: $17,650. 

Total Revenue; 
2007: $187,592; 
2006: $169,298. 

Expenses and Losses: Operating expenses; 
2007: $3,364; 
2006: $12,002. 

Expenses and Losses: Provision for losses; 
2007: ($10,135); 
2006: ($19,257). 

Expenses and Losses: Goodwill/Guarini litigation expenses (Note 4); 
2007: $195,939; 
2006: $411,056. 

Expenses and Losses: Recovery of tax benefits; 
2007: ($68,217); 
2006: ($34,783). 

Expenses and Losses: Other expenses; 
2007: $2,757; 
2006: $2,783. 

Total Expenses and Losses; 
2007: $123,708; 
2006: $371,801. 

Net Income/(Loss); 
2007: $63,884; 
2006: ($202,503). 

Accumulated Deficit - Beginning; 
2007: ($123,833,797); 
2006: ($123,631,294). 

Accumulated Deficit - Ending; 
2007: ($123,769,913); 
2006: ($123,833,797). 

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

[End of table] 

FSC:OC Resolution Fund Statement of Cash Flows for the Years Ended  
December 31: 

Dollars in Thousands. 

Operating Activities: Net Income/(Loss); 
2007: $63,884; 
2006: $(202,503). 

Operating Activities: Net Income/(Loss): Adjustments to reconcile net 
income/(loss) to net cash (used by) operating activities: Provision for 
losses; 
2007: ($10,135); 
2006: ($19,257). 

Operating Activities: Change in Operating Assets and Liabilities: 
Decrease in receivables from thrift resolutions and other assets; 
2007: $12,053; 
2006: $21,273. 

Operating Activities: Change in Operating Assets and Liabilities: 
(Decrease) in accounts payable and other liabilities; 
2007: ($1,221); 
2006: ($2,302). 

Operating Activities: Change in Operating Assets and Liabilities: 
(Decrease)/Increase in contingent liabilities for litigation losses and 
other; 
2007: ($243,977); 
2006: $21,824. 

Net Cash Used by Operating Activities; 
2007: ($179,396); 
2006: ($180,965). 

Financing Activities: Provided by: U.S. Treasury payments for goodwill 
litigation (Note 4); 
2007: $405,063; 
2006: $194,728. 

Financing Activities: Used by: Payments to Resolution Funding 
Corporation (Note 5); 
2007: ($225,000); 
2006: 0. 

Net Cash Provided by Financing Activities; 
2007: $180,063; 
2006: $194,728. 

Net Increase in Cash and Cash Equivalents; 
2007: $667; 
2006: $13,763. 

Cash and Cash Equivalents - Beginning; 
2007: $3,616,466; 
2006: $3,602,703. 

Cash and Cash Equivalents - Ending; 
2007: $3,617,133; 
2006: $3,616,466. 

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

[End of table] 

[End of section] 

Notes to the Financial Statements: 
FSLIC Resolution Fund: 
December 31, 2007 and 2006: 

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 nationï¿½s banking system. 
Provisions that govern the operations of the FDIC are generally found 
in the Federal Deposit Insurance (FDI) Act, as amended, (12 U.S.C. 
1811, et seq). In carrying out the purposes of the FDI Act, as amended, 
the FDIC insures the deposits of banks and savings associations, and in 
cooperation with other federal and state agencies promotes the safety 
and soundness of insured depository institutions by identifying, 
monitoring and addressing risks to the deposit insurance funds 
established in the FDI Act, as amended. In addition, FDIC is
charged with responsibility for the sale of remaining assets and 
satisfaction of liabilities associated with the former Federal Savings 
and Loan Insurance Corporation (FSLIC) and the Resolution Trust 
Corporation (RTC). 

The U.S. Congress created the FSLIC through the enactment of the 
National Housing Act of 1934. The Financial Institutions Reform, 
Recovery, and Enforcement Act of 1989 (FIRREA) abolished the insolvent 
FSLIC, created the FSLIC Resolution Fund (FRF), and transferred the
assets and liabilities of the FSLIC to the FRF-except those assets and 
liabilities transferred to the RTC-effective on August 9, 1989. 
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. 

Pursuant to the Federal Deposit Insurance Reform Act of 2005, the Bank 
Insurance Fund and the Savings Association Insurance Fund were merged 
into a new fund, the Deposit Insurance Fund (DIF). The FDIC is the 
administrator of the FRF and the DIF. 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 and is continuing to explore 
approaches for concluding FRF's activities. Some of the issues and 
items that remain open in FRF are: 1) criminal restitution orders 
(generally have from 5 to 10 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 from 6 months to 12 years 
remaining to enforce); 3) numerous assistance agreements entered into 
by the former FSLIC (FRF could continue to receive taxsharing benefits 
through year 2013); and 4) goodwill litigation (no final date for 
resolution has been established; see Note 4). The FDIC is considering 
whether enabling legislation or other measures may be needed to 
accelerate liquidation of the remaining FRF assets and liabilities.
The FRF could potentially realize substantial recoveries from the tax-
sharing benefits, criminal restitution orders and professional 
liability claims of up to $400 million; however, any
associated recoveries are not reflected in FRFï¿½s financial statements 
given the significant uncertainties surrounding the ultimate outcome.

Receivership Operations: 

The FDIC is responsible for managing and disposing of the assets of 
failed institutions in an orderly and efficient manner. The assets held 
by receivership entities, and the claims against them, are accounted 
for separately from FRF assets and liabilities to ensure that 
receivership proceeds are distributed in accordance with applicable 
laws and regulations. Also, the income and expenses attributable to 
receiverships are accounted for as transactions of those receiverships. 
Receiverships are billed by the FDIC for services provided on their 
behalf. 

2. Summary of Significant Accounting Policies: 

General: 

These financial statements pertain to the financial position, results 
of operations, and cash flows of the FRF and are presented in 
conformity with U.S. generally accepted accounting principles (GAAP). 
These statements do not include reporting for assets and liabilities of
closed thrift institutions for which the FDIC acts as receiver. 
Periodic and final accountability reports of the FDICï¿½s activities as 
receiver are furnished to courts, supervisory authorities, and
others as required. 

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. 

Provision for Losses: 

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

Fair Value of Financial Instruments: 

Cash equivalents, which consist of Special U.S. Treasury Certificates, 
are short-term, highly liquid investments with original maturities of 
three months or less and are shown at fair value. The carrying amount 
of short-term receivables and accounts payable and other liabilities
approximates their fair market value, due to their short maturities.

The 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 
market 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). 

Disclosure about Recent Accounting Pronouncements: 

The Financial Accounting Standards Board (FASB) issued Statement of 
Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements, 
in September 2006. SFAS No. 157 defines fair value, establishes a 
framework for measuring fair value in GAAP, and expands disclosures 
about fair value measurements. The Statement does not require any new 
fair value measurements. FDIC will adopt SFAS No. 157 effective January 
1, 2008, on a prospective basis. Management does not expect the 
Statement to have a material impact on the financial
statements. 

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 FRFï¿½s receivables from thrift resolutions. As of December 31, 2007, 
13 of the 850 FRF receiverships remain active primarily due to 
unresolved litigation, including goodwill matters. 

As of December 31, 2007 and 2006, FRF receiverships held assets with a 
book value of $22 million and $33 million, respectively (including 
cash, investments, and miscellaneous receivables of $18 million and $26 
million at December 31, 2007 and 2006, respectively). The estimated 
cash recoveries from the management and disposition of these assets are 
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 
assetï¿½s 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 FRFï¿½s actual recoveries to vary from current
estimates. 

Other Assets: 

Other assets primarily include credit enhancement reserves valued at 
$20.2 million as of December 31, 2007 and 2006. 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; 
2007: $8,367,078; 
2006: $11,308,460. 

Allowance for losses; 
2007: ($8,359,347); 
2006: ($11,299,448). 

Receivables from Thrift Resolutions, Net; 
2007: $7,731; 
2006: $9,012. 

Other assets; 
2007: 27,081; 
2006: 27,718. 

Total; 
2007: $34,812; 
2006: $36,730. 

[End of table] 

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, 2007 and 2006, respectively, $35.4 million and 
$279.3 million were recorded as probable losses. Additionally,
at December 31, 2007, the FDIC has determined that losses from 
unresolved legal cases totaling $3 million are reasonably possible. 

Additional Contingency Goodwill Litigation: 

In United States v. Winstar Corp., 518 U.S. 839 (1996), the Supreme 
Court held that when it became impossible following the enactment of 
FIRREA in 1989 for the federal government to perform certain agreements 
to count goodwill toward regulatory capital, the plaintiffs were
entitled to recover damages from the United States. Approximately 19 
remaining cases are pending against the United States based on alleged 
breaches of these agreements. 

On July 22, 1998, the Department of Justiceï¿½s (DOJ's) Office of Legal 
Counsel (OLC) concluded that the FRF is legally available to satisfy 
all judgments and settlements in the goodwill litigation involving 
supervisory action or assistance agreements. OLC determined
that nonperformance of these agreements was a contingent liability that 
was transferred to the FRF on August 9, 1989, upon the dissolution of 
the FSLIC. On July 23, 1998, the U.S. Treasury determined, based on 
OLCï¿½s 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 3, 2008, the DOJ again informed the 
FDIC that it is ï¿½unable at this time to provide a reasonable estimate 
of the likely aggregate contingent liability resulting from the 
Winstarrelated cases.ï¿½ 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 DOJ, 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 110 of the Department of 
Justice Appropriations Act, 2000 (Public Law 106-113, Appendix A, Title 
I, 113 Stat. 1501A-3, 1501A-20) such sums as may be necessary
for the 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 $405.1 million as a result of judgments and settlements in 
six goodwill cases for the year ended December 31, 2007, compared to 
$194.7 million for four goodwill cases for the year ended December 31, 
2006. As described above, the FRF received appropriations from the
U.S. Treasury to fund these payments. At December 31, 2007, the FRF 
accrued a $35.4 million contingent liability and offsetting receivable 
from the U.S. Treasury for judgments in two additional cases that were 
fully adjudicated as of year end. These funds were paid in January
2008. 

In addition, the FRF-FSLIC pays the goodwill litigation expenses 
incurred by DOJ based on a Memorandum of Understanding (MOU) dated 
October 2, 1998, between the FDIC and DOJ. Under the terms of the MOU, 
the FRF-FSLIC paid $11.4 million and $17.5 million to DOJ for
fiscal years (FY) 2008 and 2007, respectively. As in prior years, DOJ 
carried over and applied all unused funds toward current FY charges. At 
September 30, 2007, DOJ had an additional $5.6 million in unused FY 
2007 funds that were applied against FY 2008 charges of $17
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.

Eight Guarini cases were originally filed seeking damages relating to 
the governmentï¿½s elimination of certain tax deductions. The last of 
these eight cases concluded in 2007 with a settlement of $23 million 
being paid. In a case settled in 2006, the settlement agreement
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 through 
2009 is approximately $81 million. After reviewing relevant case law
in relation to the nature of the settlement, the FDIC believes that it 
is very unlikely the settlement will be subject to taxation. Therefore, 
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 RTCï¿½s 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 FDICï¿½s estimate of maximum 
potential exposure to the FRF is $18.7 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, 2007 and 2006 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 are maintained separately 
and the assets of one pool are not available to satisfy obligations of 
the other. 

The following table shows the contributed capital, accumulated deficit, 
and resulting resolution equity for each pool.

Resolution Equity at December 31, 2007: 

Dollars in Thousands. 

Contributed capital - beginning; 
FRF-FSLIC: $45,254,659; 
FRF-RTC: $82,199,337; 
FRF Consolidated: $127,453,996. 

Add: U.S. Treasury payments/receivable for goodwill litigation; 
FRF-FSLIC: $188,586; 
FRF-RTC: $0; 
FRF Consolidated: $188,586. 

Less: REFCORP payments; 
FRF-FSLIC: $0; 
FRF-RTC: ($225,000); 
FRF Consolidated: ($225,000). 

Contributed capital - ending; 
FRF-FSLIC: $45,443,245; 
FRF-RTC: $81,974,337; 
FRF Consolidated: $127,417,582. 

Accumulated deficit; 
FRF-FSLIC: ($42,185,100); 
FRF-RTC: ($81,584,813); 
FRF Consolidated: ($123,769,913). 

Total; 
FRF-FSLIC: $3,258,145; 
FRF-RTC: $389,524; 
FRF Consolidated: $3,647,669. 

[End of table] 

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. FIRREA 
prohibited the payment of dividends on any of these capital 
certificates. Through December 31, 2007, the FRF-RTC has returned 

$4.556 billion to the U.S. Treasury and made payments of $4.797 billion 
to the REFCORP. Subsequent to year-end, FRF-RTC paid an additional $225 
million to the REFCORP on January 10, 2008. These actions serve to
reduce contributed capital. 

FRF-FSLIC received $405.1 million in U.S. Treasury payments for 
goodwill litigation in 2007. Furthermore, $35.4 million and $251.8 
million were accrued for as receivables at year-end 2007 and 2006, 
respectively. The effect of this activity was an increase in 
contributed capital of $188.6 million in 2007.

Accumulated Deficit: 

The accumulated deficit represents the cumulative excess of expenses 
over revenue for activity related to the FRF-FSLIC and the FRF-RTC. 
Approximately $29.8 billion and $87.9 billion were brought forward from 
the former FSLIC and the former RTC on August 9, 1989, and
January 1, 1996, respectively. The FRF-FSLIC accumulated deficit has 
increased by $12.4 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
FRFï¿½s pension-related expenses were $252 thousand and $850 thousand for 
2007 and 2006, 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. 

[End of section] 

Appendix I: Comments from the Federal Deposit Insurance Corporation: 

FDIC: 
Federal Deposit Insurance Corporation: 
550 17th Street NW, Washington, D.C. 20429-9990: 

Deputy to the Chairman and Chief Financial Officer: 

February 4, 2008: 

Mr. David M. Walker: 
Comptroller General of the United States: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Re: FDIC Management Response on the GAO 2007 Financial Statements Audit 
Report: 

Dear Mr. Walker: 

Thank you for the opportunity to comment on the U.S. Government 
Accountability Office's (GAO) draft audit report titled, Financial 
Audit: Federal Deposit Insurance Corporation Funds' 2007 and 2006 
Financial Statements, GAO-08-416. The report presents GAO's opinions on 
the calendar year 2007 and 2006 financial statements of the Deposit 
Insurance Fund (DIF) and the Federal Savings and Loan Insurance 
Corporation Resolution Fund (FRF). The report also presents GAO's 
opinion on the effectiveness of the Federal Deposit Insurance 
Corporation's (FDIC's) internal control over financial reporting and 
compliance with laws and regulations for each of the funds as of 
December 31, 2007, and GAO's evaluation of FDIC's compliance with 
selected laws and regulations. 

We are pleased that FDIC received unqualified opinions on its financial 
statements for the sixteenth consecutive year and that there were no 
material weaknesses or significant deficiencies identified during the 
2007 audits. The GAO reported that the funds' financial statements were 
presented fairly, in all material respects, in conformity with U.S. 
generally accepted accounting principles; FDIC had effective internal 
control over financial reporting and compliance with laws and 
regulations for each fund; and there was no reportable noncompliance 
with laws and regulations that were tested. 

We appreciate GAO's recognition of our accomplishments during the 2007 
audit year. As always, our management team is dedicated to promoting 
the highest standard of financial management, and we will work 
diligently to sustain that focus. Continued improvements in operations 
remain a priority for FDIC. 

In addition, I want to recognize the GAO's support throughout the audit 
and to acknowledge you and the GAO staff for your efforts and 
dedication in working with FDIC again this year to meet the accelerated 
reporting deadline for our audited financial statements. We look 
forward to continuing this productive and successful relationship in 
the coming year. 

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 section] 

Appendix II: Staff Acknowledgments: 

Acknowledgments: 

The following individuals made key contributions to this report: Gary 
P. Chupka, Assistant Director; Patricia P. Blumenthal; Teressa M. 
Broadie-Gardner; Sharon O. Byrd; Gloria Cano; Daniel R. Castro; Sunny 
T. Chang; Dennis L. Clarke; Nina E. Crocker; Patrick R. Dugan; Casey 
Fagan; Margery B. Glover; Mickie E. Gray; David B. Hayes; Wing Y. 
Kwong; Eugene Lee; Richard P. McLean; Tammi L. Nguyen; Gloria E. Proa; 
David E. Ramirez; Heather L. Rasmussen; Chris J. Rodriguez; Eugene E. 
Stevens; Henry I. Sutanto; William F. Wadsworth; Gregory C. Wilshusen; 
Jayne L. Wilson; and Gregory J. Ziombra. 

[End of section] 

Footnotes: 

[1] A significant deficiency is a control deficiency, or combination of 
deficiencies, that adversely affects the entity's ability to initiate, 
authorize, record, process, or report financial data reliably in 
accordance with generally accepted accounting principles such that 
there is more than a remote likelihood that a misstatement of the 
entity's financial statements that is more than inconsequential will 
not be prevented or detected. 

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