Skip Navigation

Mr. Chairman, I appreciate this opportunity to appear before your Committee to discuss the condition of the federal deposit insurance funds and the banks and thrifts that hold the deposits safeguarded by those funds. I will present the Congressional Budget Office's (CBO's) new baseline projections of spending by the Bank Insurance Fund (BIF), the Resolution Trust Corporation (RTC), and the Savings Association Insurance Fund (SAIF), and our analysis of the Administration's midsession budget update for those funds. I will also share with you some concerns I have about the transition of responsibility from the RTC to the SAIF and the stability of long-term financing for the BIF and the SAIF.

In summary:

• Although a large majority of banks and thrifts appear relatively healthy, the outlook for a portion of each industry remains problematic in the near term, primarily because of large losses in recent years, generally weak economic conditions, and continuing real estate problems. Profits of banks and thrifts, in general, have rebounded, and the long-run outlook appears more promising for the majority of institutions.
  
  
• Bank Insurance Fund outlays in fiscal year 1992 have been lower than we had projected and far lower than the Administration's budget estimates. CBO now estimates that BIF's net outlays will be about $9 billion in fiscal year 1992, rise to about $13 billion in 1993, and decline thereafter. We project that from 1992 through 1995, the BIF will incur gross losses of $39 billion in resolving failed banks. We estimate that the BIF's borrowing authority will be sufficient to cover its needs and that the borrowing can be repaid from bank premiums and asset sales over the next decade.
  
  
• CBO has revised downward--by about $20 billion--its estimate of the cost of the thrift cleanup. This revision reflects legislative and regulatory changes, the beneficial effect of removing failing thrifts from the marketplace, and the recent widening of interest rate spreads. Losses on failed institutions over the 1989-1998 period will cost the RTC or its successor $135 billion on a present-value basis, in addition to the $60 billion spent for thrift losses before 1989.
  
  
• Nevertheless, if the RTC stops accepting institutions for resolution by October 1993, as scheduled, and hands over the remaining caseload to the SAIF, that fund will not be able to handle the task without additional federal resources. This situation has been worsened by the failure of the Administration and the Congress to agree on continued funding for the RTC.

This document is available in its entirety in PDF.