Summary: Comments were presented on various sections of S. 1720, the Financial Institutions Restructuring and Services Act of 1981, and on various sections of S. 1721, which would consolidate the three deposit and share insurance funds. Specifically, the comments were limited to those areas related to completed evaluations or ones which are reasonably complete, such as: (1) the improvement of industry and regulatory flexibility; (2) the consolidation of the Federal insurance funds; (3) the disposition of unclaimed property recovered from closed National banks; and (4) the reporting of insider lending by banks. GAO believes that the provisions of S. 1720 have two basic effects: (1) they provide a wider range of purchasers and merger partners than is now available, and (2) they increase the funds' abilities to financially assist institutions instead of paying off the insured accounts. Although both effects are responsive to the current situation and are beneficial to the funds, GAO believes there are limitations to each and is concerned about the implications of some of the provisions. Further, GAO believes that the provisions in S. 1720 could have only a short-lived effect if other basic changes are made to the way the financial industry is regulated. If broader opportunities for interstate acquisitions are developed, the emergency thrift acquisition provision of S. 1720 will lose much of its ability to reduce insurance fund losses. In the present environment, banking regulatory agencies have been able to keep payouts at low levels while also providing maximum stability to the industry through cash contributions or loans, assisted mergers, and purchase and assumption arrangements. With regard to the provisions of S. 1721, GAO has no objection, in principle, to the consolidation of the funds but is concerned that the bill does not address broader questions that can be raised about how share insurance should operate in an era of increased competition among financial institutions. Thus, GAO believes that areas which need to be explored in adapting deposit insurance to a competitive environment are: (1) basing insurance fees on risk, (2) reducing the risk to deposit insurance now associated with uninsured deposits and uninsured liabilities, and (3) assuring that institutions exhaust all ways of remaining solvent before deposit insurance assistance is made available.
