Financial Services Institutions:

Information for Assessing the Government's Potential Financial Exposure

GGD-98-125: Published: Jun 15, 1998. Publicly Released: Jul 15, 1998.

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Thomas J. McCool
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Pursuant to a congressional request, GAO provided information on selected financial services institutions, focusing on: (1) the potential financial exposure faced by the federal government as a result of financial services institutions sponsored, in whole or in part, by the federal government; (2) the institutions sponsored, in whole or in part, by the federal government or corporations within the executive branch that engage in financial services activities; (3) the extent to which these institutions are subject to oversight mechanisms and controls, such as a safety and soundness regulator and coverage by various statutes that promote accountability and control; (4) the independence and authorities of any safety and soundness regulators for these financial services institutions; (5) general indicators of potential exposure that these financial services institutions pose to the federal government, such as the maximum amount of theoretical losses associated with an institution's credit or insurance activities; and (6) the self-reported readiness of these institutions and regulatory efforts to achieve year 2000 compliance.

GAO noted that: (1) it identified a total of 22 institutions that met the criteria of being independent corporations, sponsored in whole and in part by the federal government, or corporations within the executive branch and authorized to engage in activities of a financial nature; (2) the types of financial activities in which these institutions were authorized to engage fell into one or more of three basic categories: lending, insurance, and secondary markets; (3) the oversight mechanisms and controls that financial services institutions were subject to were related to their status as government-sponsored-enterprises or government corporations; (4) the six government-sponsored enterprises and one of the government corporations had federal safety and soundness regulators and were subject to external audits of their annual financial statements; (5) the independence of, regulatory authorities of, and fees charged by the six safety and soundness regulators of the nine institutions varied; (6) the safety and soundness regulators for the six government-sponsored enterprises generally had more regulatory authorities, such as enforcement and examination powers, than the regulators of the one government corporation and two other institutions; (7) the primary indicators that GAO obtained on the potential exposure posed by each of these financial services institutions to the federal government included total assets and liabilities, total commitments and contingencies, and explicit backing of the institution's liabilities, commitments, and contingencies by the federal government; (8) the institutions reported their state of readiness in achieving year 2000 compliance using five phases GAO described in its Year 2000 Assessment Guide; (9) most of the institutions reported that they had completed the awareness and assessment phases, which, according to the GAO assessment guide, should have been completed by the end of August 1997; (10) work in the other phases was either in process or not yet begun; and (11) in addition, the regulators reported various efforts under way to ensure that the regulated institutions would be ready for the year 2000 conversion.

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