Thrift Industry

Pursuant to a congressional request, GAO discussed the need for a recapitalization of the Federal Savings and Loan Insurance Corporation (FSLIC) and analyzed a recapitalization plan that the Department of the Treasury and the Federal Home Loan Bank Board (FHLBB) proposed.

GAO found that FSLIC is in dire need of recapitalization because: (1) its primary reserves have fallen below $2 billion; (2) it may have a negative net worth of more than $3 billion; (3) a large number of FSLIC-insured institutions are technically insolvent; and (4) current problems in the thrift industry may cost FSLIC $23.5 billion to resolve. GAO analyzed a recapitalization plan that would provide FSLIC with about $25 billion over 5 years and found that: (1) a financing corporation created by authorizing legislation would borrow $15 billion to finance a portion of the plan; (2) FSLIC would not be able to obtain the additional $10 billion without additional income; (3) the plan would reduce FSLIC flexibility in the years after recapitalization, because it would be paying off the cost of recapitalization; (4) the Treasury/FHLBB recapitalization plan would not allow for sufficient congressional oversight; and (5) FSLIC would have to increase its bank examination activities to prevent fraud or unduly risky industry practices.