Keeping an Eye on Government-Sponsored Enterprises

This article, which appeared in the GAO Journal, No. 12, Spring 1991, discusses the type of oversight and regulation needed for government-sponsored enterprises (GSE), noting that: (1) GSE stand behind a huge amount of private debt, with 3 GSE guaranteeing over half a trillion dollars; (2) assessments of GSE financial condition typically assume that the government will bail out failing GSE, even though it is not required to do so; (3) not all GSE have regulators with sufficient authority to identify and correct emerging problems; and (4) regulation of some GSE is some disturbingly similar to the pre-crisis regulation of insured savings and loan associations. GSE regulation could be strengthened by: (1) setting minimum capital levels that are based on risk; (2) establishing rules that limit risk-taking; and (3) imposing sanctions on GSE found to be operating unsafely.