Financial Markets and Institutions:

FDIC Equity Investments

GGD-94-196R: Published: Aug 26, 1994. Publicly Released: Aug 26, 1994.

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GAO reviewed the Federal Deposit Insurance Corporation's (FDIC) use of equity investments to facilitate the resolution of failed banks. GAO noted that: (1) although FDIC equity investments can reduce insurance fund losses and even generate profits, they can also increase potential losses and create conflicts of interest with FDIC roles as bank regulator and insurer; (2) FDIC does not have formal policies that describe the circumstances under which equity investments should be made or policies for managing and disposing of its equity investments; (3) FDIC failure to separate its equity investment portfolio management and resolution decisionmaking processes could weaken its credibility as a bank insurer and regulator; (4) FDIC equity investments in failed banks could complicate the calculation of least-cost approaches to bank resolutions; and (5) FDIC does not consider the lack of policies on equity investments a high priority, since it does not foresee any major increases in resolutions or investments in the near future.

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