Summary: GAO reports that the Bank Insurance Fund's financial statements for 1990 and 1989 are fairly presented in accordance with generally accepted accounting principles, but significant uncertainties exist, largely beyond the Federal Deposit Insurance Corporation's (FDIC) control, that affect cost estimates for resolving institutions. As a result, actual resolution costs could be higher than estimated. In August 1991, FDIC officials agreed to adjust the Fund's 1990 financial statements to reflect $4.2 billion in previously unrecognized costs related to insolvent institutions as GAO had earlier recommended. On a related matter, GAO took exception to how FDIC reported on the Fund's financial statement amounts related to certain failed bank resolutions that FDIC characterized as "escrowed funds." FDIC initially reported these amounts--$3.7 billion and $.7 billion for 1990 and 1989, respectively--as an offset to the financial statement line item "Net receivables from bank assistance and failures." In October 1991, FDIC agreed to reclassify these amounts to the financial statement line item "Liabilities incurred from bank assistance and failures," decreasing its available borrowing authority. The Fund's 1990 financial statements show that the significant losses it has incurred in resolving problem institutions have substantially depleted its equity. Congress is considering legislation that would increase FDIC's borrowing authority for the Fund to about $70 billion, the exact amount depending on a formula for limiting the Fund's outstanding obligations. However, the funds that will ultimately be needed to resolve failing institutions depend on current and future economic conditions and may thus be significantly higher than the amount FDIC may receive under proposed legislation. Delays in resolving future problem institutions could result if funding does not cover the costs of future bank failures and the Fund's reserves are not rebuilt to absorb these additional costs. These delays will ultimately lead to higher costs for resolving problem banks and may thus expose the taxpayer to future losses. Finally, GAO cautions that no funding bill should be passed if it does not also address weaknesses in the regulation of the banking industry and deficiencies in the internal control and reporting standards for financial institutions.
