Resolving the Savings and Loan Crisis

GAO provided its views on how best to resolve the savings and loan crisis. GAO found that: (1) the Federal Savings and Loan Insurance Corporation's (FSLIC) approach to resolving thrift institution cases depended too heavily on assisted merger agreements that minimized its need for cash and required subsidies for up to 10 years; (2) FSLIC-subsidized institutions competed with healthy, nonassisted depository institutions at a cost advantage; (3) the FSLIC lack of independence has weakened its risk management and insurance function; and (4) to fully resolve the thrift crisis and restore FSLIC reserves, FSLIC needs at least $85 billion more than it currently anticipates receiving over the next 10 years. GAO recommended a changed approach to resolving insolvent thrift institutions, changes to FSLIC risk management strategies, and, if those changes occur, sufficient funding to resolve the crisis, even at the expense of deficit reduction priorities.