The Federal Savings and Loan Insurance Corporation--Current Financial Condition and Outlook

GAO discussed the Federal Savings and Loan Insurance Corporation's (FSLIC) financial condition. GAO noted that, during 1987: (1) one-third of the 3,147 FSLIC-insured savings and loan institutions experienced $13.4 billion in losses due to diversification into riskier activities, the high cost of funds, and insufficient management; (2) 500 insolvent institutions and 435 barely solvent institutions continued to operate; (3) FSLIC had an operating loss of $8.6 billion, resulting in a $13.7-billion deficit; (4) FSLIC assumed responsibility for over 200 insolvent institutions with a total liability exceeding $17 billion; and (5) FSLIC expected to recover 39 percent of its claims of $2.8 billion against the closed institutions' assets. GAO believes that FSLIC based its optimistic belief that it had sufficient resources to effectively deal with industry problems on the incorrect assumptions that: (1) it could resolve troubled institutions' problems with mergers; (2) future resolutions would cost less and occur more rapidly; and (3) certain interest-rate growth and future industry conditions would be more favorable.