Summary: GAO studied the interrelationship of financing, risk, and industry structure in the deposit insurance system and discussed proposals for reform, specifically: (1) how the Federal Deposit Insurance Corporation (FDIC) and the Federal Savings and Loan Insurance Corporation (FSLIC) treat the largest commercial banks and savings institutions which they insure; (2) financing deposit insurance without relying on taxpayer subsidies; (3) varying insurance premiums according to the degree of risk posed by individual institutions; (4) protecting the deposit insurance system by increasing minimum capital requirements for some or all insured institutions; (5) achieving an appropriate degree of consistency between the FDIC and FSLIC insurance programs; and (6) defining the roles of insured deposits and of insured institutions in the economy.
GAO noted that its study does not: (1) endorse specific proposals for reform; or (2) conclude that comprehensive congressional action is urgently needed. GAO found that, to achieve deposit insurance reform, changes should be made to: (1) ensure that deposit insurance continues to be an industry-financed system; (2) increase the extent to which market forces and supervisory procedures are used to price deposit insurance risk and to influence the risk-taking characteristics of insured institutions; and (3) clarify the roles of insured deposits and of institutions with deposit insurance.
