Condition of the Bank Insurance Fund: Outlook Affected by Economic, Accounting, and Regulatory Issues

GAO discussed the Bank Insurance Fund's (BIF) financial statements. GAO noted that: (1) BIF 1991 financial statements disclosed a $7-billion deficit, a culmination of 4 consecutive years of net losses; (2) the Federal Deposit Insurance Corporation's (FDIC) resolution activities may not be keeping pace with the recognition of losses from troubled institutions; (3) the number of identified problems banks increased by 4 percent between 1990 and 1991, and a third of BIF-insured savings banks reported losses for 1991; (4) despite improvement in overall bank earnings and capital levels, BIF exposure to losses from troubled banks continues to be significant, due to the increasing share of assets held by troubled banks and asset quality problems; and (5) FDIC estimates that BIF may incur between $25.8 billion and $35.3 billion in resolving troubled banks over the next several years. GAO also noted that: (1) the FDIC Improvement Act of 1991 may not provide adequate funding for the resolution of troubled banks; (2) the act includes much needed accounting, auditing, and regulatory reforms, but may not adequately address rules that enable banks to only partially disclose their financial conditions; and (3) recently proposed initiatives aimed at weakening the act's supervisory and regulatory reforms could set the stage for another serious financial crisis for deposit insurance funds and taxpayers.