Financial Services Institutions

Information for Assessing the Government's Potential Financial Exposure Gao ID: GGD-98-125 June 15, 1998

The federal government provides, or assists in providing, several diverse financial services programs to help meet identified goals. Some of these programs provide credit or loan guarantees for housing, education, business, and the export of various products, as well as insurance for pension plans and deposits in financial institutions. Federal agencies directly operate some of these programs. Others are operated by special entities created by the federal government, using appropriated or private funds. These entities are predominately government corporations and government-sponsored enterprises. Collectively, federal agencies and government corporations operated financial programs that had a face value of $6 trillion outstanding in on- and off-balance sheet obligations at the end of 1996, according to budget documents. This amount included $165 billion in direct loans, $805 billion in loan guarantees, and $5 trillion in insurance. Government-sponsored enterprises provided an additional $1.7 trillion to this total for the same period.

GAO noted that: (1) it identified a total of 22 institutions that met the criteria of being independent corporations, sponsored in whole and in part by the federal government, or corporations within the executive branch and authorized to engage in activities of a financial nature; (2) the types of financial activities in which these institutions were authorized to engage fell into one or more of three basic categories: lending, insurance, and secondary markets; (3) the oversight mechanisms and controls that financial services institutions were subject to were related to their status as government-sponsored-enterprises or government corporations; (4) the six government-sponsored enterprises and one of the government corporations had federal safety and soundness regulators and were subject to external audits of their annual financial statements; (5) the independence of, regulatory authorities of, and fees charged by the six safety and soundness regulators of the nine institutions varied; (6) the safety and soundness regulators for the six government-sponsored enterprises generally had more regulatory authorities, such as enforcement and examination powers, than the regulators of the one government corporation and two other institutions; (7) the primary indicators that GAO obtained on the potential exposure posed by each of these financial services institutions to the federal government included total assets and liabilities, total commitments and contingencies, and explicit backing of the institution's liabilities, commitments, and contingencies by the federal government; (8) the institutions reported their state of readiness in achieving year 2000 compliance using five phases GAO described in its Year 2000 Assessment Guide; (9) most of the institutions reported that they had completed the awareness and assessment phases, which, according to the GAO assessment guide, should have been completed by the end of August 1997; (10) work in the other phases was either in process or not yet begun; and (11) in addition, the regulators reported various efforts under way to ensure that the regulated institutions would be ready for the year 2000 conversion.

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