Budgetary Implications of the Savings and Loan Crisis

T-AFMD-88-19: Published: Oct 5, 1988. Publicly Released: Oct 5, 1988.

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GAO discussed the budgetary impact of the: (1) savings and loan industry crisis; and (2) Federal Savings and Loan Insurance Corporation's (FSLIC) use of notes payable and other commitments to resolve its case load of insolvent thrift institutions. GAO found that, in 1988: (1) thrift industry experienced an overall net loss totalling $7.5 billion; (2) insolvent institutions incurred losses of about $8.7 billion; (3) 497 institutions with $188 billion in assets reported negative net worth of about $26 billion; (4) FSLIC incurred $20.2 billion in costs relating to 126 actions it took to resolve the problems of failed institutions; and (5) FSLIC issued $10 billion in notes, although the Office of Management and Budget (OMB) had raised the budget estimates to only $5.8 billion in July 1988. GAO also found that the OMB fiscal year 1989 budget estimate for FSLIC was inadequate and could affect 1989 deficit reduction calculations.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: P.L. 101-73 contains a provision which limits the savings association and bank insurance funds from issuing notes, guarantees, or other obligations if, after reduction for the estimated cost of the obligation or guarantee, the net worth of the affected insurance fund would be less than 10 percent of assets.

    Matter: Congress may wish to place a specific limitation on the commitments FSLIC may issue, regardless of whether they are in the form of notes, guarantees, or any other types of obligations.

 

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