Condition of the Bank Insurance Fund:

Outlook Affected by Economic, Accounting, and Regulatory Issues

T-AFMD-92-10: Published: Jun 9, 1992. Publicly Released: Jun 9, 1992.

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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.

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