Resolving the Savings and Loan Crisis

T-GGD-89-4: Published: Feb 2, 1989. Publicly Released: Feb 2, 1989.

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GAO provided its view on how to resolve the savings and loan crisis. GAO found that, to protect the integrity of the deposit insurance system: (1) the Federal Savings and Loan Insurance Corporation (FSLIC) should be made independent of the Federal Home Loan Bank Board (FHLBB), with a separate board of directors to oversee two separate insurance funds for healthy and insolvent institutions; (2) the Federal Deposit Insurance Corporation (FDIC) and FSLIC need flexibility to adjust premiums to reflect actual or anticipated losses; and (3) FDIC and FSLIC should be given more authority to place stringent controls on improperly operated and undercapitalized institutions. GAO also found that, to effectively resolve the crisis, Congress should: (1) provide sufficient funds to finance case resolutions; (2) create a control board to ensure adequate controls over spending and protect taxpayers' interest; and (3) provide FSLIC the flexibility to undertake short-term liquidity borrowing to finance any deposit outflows that might occur. GAO also noted that: (1) the FSLIC approach to resolve case loads depended too heavily on assistance agreements; (2) FSLIC needs the assistance of state and federal regulators and insurance officials to efficiently and effectively assess the quality of thrift institutions, and timely resolve the case loads at the lowest cost to the government; and (3) to help Congress properly regulate savings and loan institutions in the future, qualified thrifts should be allowed to choose whether to remain in a reorganized FSLIC or switch to FDIC.

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