Summary: In response to a congressional request, GAO discussed: (1) the benefits and disadvantages of merging the Federal Deposit Insurance Corporation (FDIC) and the Federal Savings and Loan Insurance Corporation (FSLIC); and (2) actions needed to restore the deposit system's financial health.
GAO believes that: (1) the current strategy for resolving insolvent institutions is costly and does not consider the total cost to the government of resolving insolvent thrifts; (2) to help restore the deposit insurance system to financial health and prevent repetition of the savings and loan crisis, FSLIC should take control of insolvent thrifts until they can be effectively rehabilitated, merged, or liquidated; (3) FSLIC should be separated from the Federal Home Loan Bank Board (FHLBB) and reorganized to allow it to impose higher capital requirements and compel other reforms; (4) FSLIC should isolate unhealthy thrifts so that they cannot compete with adequately funded institutions; (5) the thrift industry should bear as much of the cost of resolving the savings and loan crisis as possible; (6) if Congress decides that the rest of the deposit industry should pay the remaining cost, it should spread that burden as evenly as possible to avoid placing certain industry sectors at a competitive disadvantage; and (7) a merger of FDIC and FSLIC would merely divert needed FDIC resources to cover FSLIC costs.
