The Federal Savings and Loan Insurance Corporation's Use of Notes and Assistance Guarantees

T-AFMD-88-17: Published: Sep 8, 1988. Publicly Released: Sep 8, 1988.

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GAO discussed the Federal Savings and Loan Insurance Corporation's (FSLIC) use of notes payable and other commitments to resolve its case load of insolvent savings and loans institutions. GAO found that FSLIC: (1) used acquisitions or mergers to resolve the problems of insolvent savings and loan institutions; (2) issued 22 notes worth about $6.8 billion in 83 merger transactions, and made substantial long-term financial guarantess to compensate the acquirers against future losses; (3) liquidated 18 institutions at a cost of $2.3 billion; and (4) increased its outstanding balance of notes payable to acquirers of insolvent institutions from $100 million to about $9 billion from December 1983 through August 1988. GAO also found that: (1) FSLIC created uncertainties concerning the notes' worth by sharply increasing the amount it issued; and (2) there was a significant imbalance between the industry's problems and FSLIC financial capabilities. GAO believes that any legislative restriction on the activities of insolvent institutions should provide sufficient flexibility to allow limited and prudent lending and investment while preventing the growth of insolvent institutions.

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