Banking


  The FDIC’s Deposit Insurance Fund (DIF) balance fell $15.7 billion, or 45.4%, to $18.9 billion in the fourth quarter of 2008, according to the Chief Financial Officer’s (CFO) Report to the Board. The fund’s total comprehensive loss for 2008 was $33.5 billion. Insurance losses for the year totaled $40.2 billion with the failure of IndyMac Bank of Pasadena, Calif., alone costing the fund an estimated $10.7 billion.

 

Bank failures continued to put pressure on the DIF at the start of 2009. In the fourth quarter, the FDIC was named receiver of 12 institutions with combined assets of $25 billion and combined estimated losses of $4 billion. The FDIC took over 21 failed institutions in the first quarter of 2009 at an estimated cost to the DIF of $2.35 billion.

 

The fourth quarter drop in the DIF balance was primarily due to the $17.55 billion increase in the provision for insurance losses mainly related to anticipated failures, the report said. The increase in provisions was partially offset by increased assessment revenue, interest earned on securities and both realized and unrealized gains on securities.

 

The sharp drop in the DIF balance coincided with almost 11% growth in insured deposits from $4.29 trillion at the end of 2007 to $4.76 trillion at the end of 2008. The divergence of the DIF balance and total deposits resulted in a drop in the DIF reserve ratio from 1.22% at the end of 2007 to 0.40% at the end of 2008.

 

The FDIC has taken steps to restore the reserve ratio. At the end of February, the regulator released an interim final rule that imposes an emergency special assessment on insured institutions of 20 cents per $100 of deposits as of June 30, 2009. The rule permits another 10-basis-point assessment after June 30 if necessary to maintain confidence in federal deposit insurance. The special assessments are part of the FDIC’s plan to restore the reserve ratio to 1.15% over seven years.

 

The CFO Report to the Board is available at www.fdic.gov.

 

 

  AICPA staff issued guidance to help preparers and auditors consider financial reporting issues resulting from actions taken by the National Credit Union Administration (NCUA) to stabilize the corporate credit union system.

 

The NCUA is injecting $1 billion in cash from the National Credit Union Share Insurance Fund (NCUSIF) into the U.S. Central Federal Credit Union (USC) in the form of capital. The USC and many of its member corporate credit unions made investments in asset-backed securities that became impaired.

 

The NCUA also is offering a voluntary temporary NCUSIF guarantee of member shares in corporate credit unions through Dec. 31, 2010.

 

The guidance, available at tinyurl.com/dc2uae, was developed by AICPA staff and industry experts. It explains how to evaluate capital investments in corporate credit unions for other-than-temporary impairment. Issued as two Technical Practice Aid question-and-answer documents, the guidance explores whether the NCUA’s actions constitute a type 1 or type 2 subsequent event with regard to the valuation of a federally insured credit union’s NCUSIF deposit at Dec. 31, 2008, and when and how the obligation for the insurance premium should be recognized for financial reporting purposes.

 

 

  Credit quality continued to deteriorate at the end of 2008 as the performance rate for all mortgages dropped to just under 90%, down from 93% at the end of the third quarter of 2008, according to the OCC and OTS Mortgage Metrics Report for the fourth quarter of 2008.

 

The biggest percentage jump in serious delinquencies occurred in prime mortgages. At the end of the fourth quarter, 2.4% of all prime mortgages were seriously delinquent compared with 1.1% at the end of the first quarter of 2008.

 

Loan modifications and payment plans increased 11% in the quarter, but re-default rates remained high. Serious delinquency rates (60 or more days past due) after eight months were 41% for loans modified in the first quarter and 46% for loans modified in the second quarter. So far, 31% of loans modified in the third quarter have become seriously delinquent after only three months.

 

The report also noted that modifications that resulted in lower payments increased to more than 50% of all loan modifications in the fourth quarter. A modification’s effect on monthly payments has been a big factor in re-default rates. When modifications decreased monthly payments by more than 10%, the serious delinquency rate was only about 23% after six months compared with a 51% serious delinquency rate after six months for modifications that resulted in no change in payment.

 

The Mortgage Metrics Report is available at www.ots.treas.gov and www.occ.treas.gov.

 

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