New Warning on Deposit Insurance : Banking: The GAO report renews calls for legislation to avoid exhausting the FDIC fund by the end of the year.

The government’s fund for insuring bank accounts up to $100,000 “will likely be insolvent” by the end of this year as more institutions fail in the coming months, congressional auditors said Friday.

Soon after the General Accounting Office report was released, the chairman of the House Banking Committee, Rep. Henry B. Gonzalez (D-Tex.), said Congress may need to act within 60 days to replenish the Federal Deposit Insurance Corp. fund, which he described as “perilously close” to insolvency.

An omnibus bill to reform the banking system would provide the FDIC fund with $70 billion in new taxpayer-backed borrowing authority--and a separate measure introduced by Gonzalez would do the same.

Gonzalez said he’s willing to move on the separate legislation without waiting for the comprehensive bill.

The latest report by the GAO, Congress’ investigative arm, said the date the FDIC fund could become insolvent depends on the rate at which insolvent banks are identified and losses recognized.

While the fund “will likely be insolvent by the end of 1991,” the GAO said, it “should have sufficient cash resources and borrowing authority available to cover its cash needs through Dec. 31, 1991.”

FDIC spokeswoman Caryl Austrian said the agency had no immediate comment because it had not seen the GAO report. But outgoing FDIC Chairman L. William Seidman has predicted that the fund could be insolvent by the end of 1991.

The latest GAO report is in line with warnings issued several months ago by Comptroller General Charles A. Bowsher, who heads the watchdog agency. Bowsher has been vocal in expressing concern about the size of the insurance fund and the government’s ability to bail out troubled banks.

An additional 34 large banks are “more likely than not” to fail this year without capital infusion, the GAO report said. An additional 64 large institutions could fail over the next one to three years and a number of small institutions also are in trouble, the report said.

The GAO report also said the FDIC had dramatically overstated the balance in the fund.

According to the GAO, the fund’s balance on Dec. 31, 1990, previously reported as $8.2 billion by the FDIC, was overstated by at least $4.2 billion. The report said the FDIC agrees this adjustment represents needed additional reserves for losses for insolvent banks.

The report addressed the issue of replenishing the FDIC fund, suggesting that “having new borrowing authority in place by the end of 1991 would help ensure that the fund has resources available to resolve problem banks.”

Meanwhile, Gonzalez said in a statement that “while the GAO suggests that some cash will be on hand by the end of the calendar year, it is becoming increasingly clear that a delay in refunding” the bank insurance fund “is a big gamble that will further erode the public’s confidence in the financial and regulatory system.”

In addition to the insurance fund’s problems, the GAO said the Resolution Trust Corp., which is handling the cleanup of failed institutions, could use up nearly all of the $80 billion provided to it by Sept. 30.

By year-end, the costs will exceed funds now available by $8 billion, the report said. The RTC is seeking an additional $80 billion.

New aid would have to be in place at the RTC by Sept. 30 “to avoid additional costs resulting from delays in closing troubled thrifts,” the GAO said.