Fund That Insures S&Ls; Is Deteriorating
A federal audit to be released soon is expected to show that the fund that insures deposits at savings and loan associations deteriorated dramatically last year in spite of the government’s efforts to stabilize the beleaguered S&L; industry.
The Federal Savings & Loan Insurance Corp., which insures deposits up to $100,000 and manages failed S&Ls;, faced liabilities that were as much $13 billion more than its assets at the end of 1987, government sources said the audit will show. That was more than double the deficit of $6.3 billion that the insurance fund had at the end of 1986.
The fund’s growing deficit reflects the deepening problems of the S&L; industry, where hundreds of institutions are insolvent but are kept open because the government cannot afford to close them and pay off depositors.
According to government estimates, the insurance fund’s deficit could grow in the next few years to a figure between $30 billion and $65 billion. Federal officials say the government will squeeze healthy institutions to pay as much as possible of that amount. But ultimately, taxpayers will probably bear much of the burden because money will have to come from the U.S. Treasury, industry officials say.
Snowballing of Deficit
The snowballing of the insurance fund’s deficit and the threat it poses to the financial system--not to mention the federal budget--has frustrated and alarmed Reagan Administration and regulatory officials. They have watched the S&L; industry’s health erode steadily for six years despite efforts to stabilize the insurance fund, which got permission from Congress last year to borrow $10.8 billion on Wall Street.
The White House’s Office of Management and Budget has joined other government agencies in looking at drastic measures to bolster the FSLIC’s funds. Such steps would not solve the FSLIC’s problems completely, but would ensure that the federal government “had overturned every stone possible” to round up money for the sagging fund before asking taxpayers to step in, one government official said.
One plan that government sources say is being kicked around is liquidating the Federal Home Loan Mortgage Corp., or Freddie Mac, which Congress created in 1970 to funnel money from investors to home buyers. Freddie Mac employs 2,000 people nationwide, including 1,400 in the Washington area.
Freddie Mac pumps money into housing by buying home loans from S&Ls; and then using the mortgages as collateral for securities it sells to investors.
The OMB also is looking more seriously at an idea that has long been studied by bank regulators: Merging the FSLIC with the far healthier fund that insures deposits at commercial banks, the Federal Deposit Insurance Corp. In contrast to the FSLIC’s widening deficit, the FDIC has $18 billion in reserves.
