Related topics

GAO Projects FDIC Bankruptcy by Year’s End

August 23, 1991

WASHINGTON (AP) _ The fund that insures bank accounts up to $100,000 ″will likely be insolvent″ by year’s end, congressional investigators said Friday.

Soon after the report’s release, the chairman of the House Banking Committee, Rep. Henry B. Gonzalez, D-Texas, said Congress may need to act within 60 days to replenish the Bank Insurance Fund, which he described as ″perilously close″ to insolvency.

An omnibus bill to reform the banking system would provide the Federal Deposit Insurance Corp. fund with $70 billion in new taxpayer-backed borrowing authority - and a separate measure introduced by Gonzalez would do the same.

Gonzalez said he’s willing to move on the separate legislation without waiting for the comprehensive bill.

The report suggested that ″having new borrowing authority in place by the end of 1991 would help ensure that the fund has resources available to resolve problem banks.″

The date the fund could become insolvent depends on the rate at which insolvent banks are identified and losses recognized, according to the GAO, Congress’ investigative agency.

While the fund ″will likely be insolvent by the end of 1991,″ the GAO said, it ″should have sufficient cash resources and borrowing authority available to cover its cash needs through Dec. 31, 1991.″

Gonzalez said in a statement, ″While the GAO suggests that some cash will be on hand by the end of the calendar year, it is becoming increasingly clear that a delay in refunding″ the bank insurance fund ″is a big gamble that will further erode the public’s confidence in the financial and regulatory system.″

The GAO also reported that the fund’s balance on Dec. 31, 1990, previously reported as $8.2 billion by the FDIC, was overstated by at least $4.2 billion. The report said that the FDIC agrees this adjustment represents needed additional reserves for losses for insolvent banks.

An additional 34 large banks are ″more likely than not″ to fail this year without capital infusion, the GAO said. An additional 64 large institutions could fail over the next one to three years and a number of small institutions also are in trouble, the report said.

In addition to the insurance fund’s problems, the GAO said the Resolution Trust Corp., which is handling the cleanup of failed institutions, could use up nearly all of the $80 billion provided to it by Sept. 30.

By year’s end, the costs will exceed funds now available by $8 billion, the report said. The RTC is seeking an additional $80 billion.

New aid would have to be in place at the RTC by Sept. 30 ″to avoid additional costs resulting from delays in closing troubled thrifts,″ the GAO said.

FDIC spokeswoman Caryl Austrian said the agency had no immediate comment because it had not seen the GAO report.

Update hourly