Financial Analysis:

Short-Term Funding Needs of the Bank Insurance Fund and the Resolution Trust Corporation

AFMD-91-90: Published: Aug 22, 1991. Publicly Released: Aug 22, 1991.

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Pursuant to a congressional request, GAO provided information about the financial condition of the Bank Insurance Fund and the Resolution Trust Corporation (RTC), focusing on whether the Federal Deposit Insurance Corporation (FDIC) was: (1) forbearing from closing institutions; or (2) approving forms of transactions that were more costly in the long-run.

GAO found that: (1) FDIC overstated the Fund balance at December 31, 1990 by a minimum of $4.2 billion, leaving a balance of $4 billion; (2) a new FDIC methodology to identify and recognize losses associated with insolvent institutions should produce more accurate information on the Fund's future status and condition; (3) existing deficiencies in accounting principles for both loss recognition and measurement continue to hinder the ability of FDIC and other financial institution regulators to identify all institutions that are insolvent; (4) the Fund will continue to incur losses of about $1 billion a year over the next 3 years from the failure of small institutions; (5) due to continuing financial reporting deficiencies by banks and the inherent uncertainties associated with regulatory decisions regarding problem institutions, the Fund will likely be insolvent by December 31, 1991; (6) if RTC adheres to its June 17, 1991 resolution schedule, it will use $79 billion of the $80 billion loss funds already provided by September 30, 1991, and will exceed the total funds provided by $8 billion at December 31, 1991; and (7) it could not be determined whether forbearance was being used to conserve cash, but financial audits of the Fund and RTC identified a number of insolvent banks and thrifts that have not been closed.