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GAO discussed the financial condition of the Federal Deposit Insurance Corporation's (FDIC) Bank Insurance Fund. GAO noted that: (1) FDIC spent $7.3 billion during 1988 to assist record numbers of insolvent or barely solvent banks; (2) the fund incurred its first net loss, totalling $4.2 billion, in 1988, and also reduced its ratio of fund balance to insured deposits to 0.83, the lowest level ever; (3) banking and financial trends which could further strain the fund involve the growth of nonperforming assets, a rapid increase in interest rates, and debt-servicing problems; (4) recently enacted legislation enhanced FDIC discretion to increase bank insurance premiums to help the fund obtain sufficient resources to handle more than its current and near-term identifiable needs; and (5) the fund's unaudited July 31, 1989, financial statements showed a balance of $14.4 billion. GAO believes that, to avoid another financial services industry crisis, FDIC-insured banks must strengthen internal controls concerning: (1) adequate supervision of bank management; (2) adequate regulation of risk-oriented activities; (3) appropriate loan underwriting and approval processes; and (4) annual reports and audits of banks' internal control structures.

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