Issues Involving FHLBB Accountability and Control Policies

AFMD-88-57: Published: May 20, 1988. Publicly Released: May 20, 1988.

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Robert W. Gramling
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GAO reviewed the Federal Savings and Loan Insurance Corporation's (FSLIC) financial policies.

GAO found that: (1) although FSLIC began a policy of issuing notes in connection with many of its resolution actions, there were few controls over the total amount of notes it could issue or the resultant commitment of federal money; (2) FSLIC has also begun to issue more substantial amounts of long-term yield and other guarantees to acquirers and others involved in restructuring insolvent thrifts with little provision for appropriate controls, public accountability, and public credibility; and (3) some savings and loan associations have entered into highly complex financial instruments and hedging transactions with little guidance as to the risks involved.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: On July 7, 1988, the Chairman of the House Banking Committee stated that the amount of notes issued would be limited to cash resources.

    Recommendation: The Chairman, Federal Home Loan Bank Board (FHLLB), should issue a public policy statement, consistent with its cash flow projections, regarding the total amount of notes FSLIC intends to issue, as well as the total amount of yield and other guarantees FSLIC intends to provide, in connection with its resolution actions.

    Agency Affected: Federal Home Loan Bank Board

  2. Status: Closed - Implemented

    Comments: The Bank Board has issued/revised numerous policy statements on financial instruments and has established a specific division responsible for issues related to these activities.

    Recommendation: The Chairman, FHLLB, should ensure that the Office of Regulatory Policy, Oversight and Supervision monitors and provides necessary guidance on new financial instruments and transactions to the supervisory and examination staff, as well as insured savings and loan associations.

    Agency Affected: Federal Home Loan Bank Board


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