Bank Insurance Fund

GAO reviewed the methodologies used by five forecasters--the Congressional Budget Office, the Federal Deposit Insurance Corporation, the Office of Management and Budget, Ely and Company, and Roger J. Vaughan and Edward W. Hill--to estimate bank failures and resulting losses incurred by the Bank Insurance Fund. This report (1) contrasts the various approaches used by these forecasters in estimating bank failures and losses and (2) discusses the major similarities and differences between them, the key assumptions used, and the timing and the frequency of their preparation.

GAO found that: (1) the forecasters' BIF loss estimates vary widely because of differing methodologies and assumptions; (2) the forecasters' methodologies share some characteristics such as reliance on professional judgment and banks' unaudited quarterly reports of their financial condition and income; (3) the methodologies significantly differ in their use of data from sources other than call reports, assumptions, the way BIF losses are estimated from future resolution activity, and the time periods on which the projections are based; (4) bank failure estimates and their impact on BIF are uncertain because of their dependence on unpredictable events and forecasters' incomplete disclosure of their methodologies; (5) the Federal Deposit Insurance Corporation (FDIC) is in the best position to provide meaningful loss estimates because of its access to information on the actual costs of bank failure resolutions; and (6) FDIC needs to maintain a well-capitalized BIF because of the uncertainties in long-range loss estimates.