Condition of the Bank Insurance Fund:
Outlook Affected by Economic, Accounting, and Regulatory Issues
T-AFMD-92-10, Jun 9, 1992
GAO discussed the Bank Insurance Fund's financial statements, focusing on the future condition of, and outlook for, the Fund and the overall bank insurance industry. GAO noted that: (1) the Fund's deficit balance of $7 billion is the culmination of 4 consecutive years of net losses incurred from historically high levels of bank failures; (2) 4 years ago, the Fund's reserves stood at $18.3 billion, the highest level ever, but it has since incurred cumulative losses of over $25 billion, which have depleted its reserves; (3) in fiscal year (FY) 1991, the Bank Insurance Fund incurred a net loss of $11.1 billion and the Federal Deposit Insurance Corporation (FDIC) identified on the Fund's financial statements $15.5 billion in estimated losses for resolutions of troubled banks; (4) FDIC resolved 53 troubled banks with total assets of $16.4 billion in FY 1992, but the actual pace of resolving the troubled banks can be affected by such factors as changes in economic conditions and fluctuations in interest rates; (5) legislation increased FDIC authority to borrow funds to cover losses incurred in resolving troubled institutions to $30 billion, but required FDIC to recover those funds through premium assessments charged to insured institutions; (6) FDIC expects the Fund to incur costs ranging from $25.8 billion to $35.3 billion for resolving troubled banks over the next two years; and (7) flexible accounting rules, auditing, and regulatory reforms have enabled banks to conceal loan losses, which can delay regulatory action and increase losses to the Fund.