Summary: GAO discussed the preliminary results of its audit of the Bank Insurance Fund's 1990 financial statements and its views on how best to meet the Fund's financial needs. GAO noted that: (1) after paying for about 600 failed banks over 3 years, the Fund's estimated reserves as of December 31, 1990, totalled about $5 billion, representing about .26 percent of insured deposits; (2) the Administration's plan for helping the Fund proposed allowing it to borrow federal funds to finance losses from failed-bank resolutions, but did not provide for recapitalizing the Fund; and (3) projections of Fund reserves by the end of 1991 ranged between $1 billion and $5 billion, based on estimates of probable bank failures. GAO believes that: (1) the banking industry, not taxpayers, should fund the recapitalization and maintenance of the Fund's reserves; (2) special industry assessments could bring reserves up to the minimum reserve standard of 1.25 percent of insured deposits; (3) if industry-financed rebuilding is not feasible, a Department of the Treasury equity contribution to the Fund could be considered; and (4) the Administration's proposed borrowing plan could reduce incentives for stronger regulation and improvement of bank management practices.
