The FSLIC Insurance Fund--Recent Management and Outlook for the Future

GGD-84-3: Published: Oct 14, 1983. Publicly Released: Oct 14, 1983.

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GAO reported on the Federal Savings and Loan Insurance Corporation's (FSLIC) management in 1981 and 1982, the effect that different interest rates and changes in the marketplace will have on FSLIC, and changes and proposed changes in financial reporting.

Throughout 1981 and 1982, when the Nation's savings and loan industry experienced recordbreaking losses, confidence in the savings and loan industry never seriously weakened because FSLIC and Congress succeeded in ensuring savings and loan customers that their deposits were safe up to the insurance limit. During this period, FSLIC was able to manage a record number of insolvencies and close out 1982 with fund reserves of $6.3 billion without resorting to any extraordinary actions because of changes in its method of handling financially troubled institutions. FSLIC developed new forms of assistance that avoided many liquidations, and regulatory changes allowed institutions to operate on their own with less capital. FSLIC initiated a program of assisting troubled institutions before they became insolvent. Building on the savings and loans' strong cash flow, FSLIC arranged mergers that limited initial cash outlays and spread costs over future periods. In addition, FSLIC was able for the first time to arrange the sale or merger of financially troubled institutions with out-of-state institutions and institutions outside the savings and loan industry. A substantial decline in interest rates has provided relief for the industry and FSLIC. The future condition of the FSLIC fund depends largely upon interest rates and the effects of new competitive factors on industry profits. Finally, the industry is now subject to new accounting and financial reporting requirements which are intended to enhance monitoring of savings and loan conditions.

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