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Figures bleak on bank fund, S&L bailout

Despite forecasts of a turnaround, new figures show that the banking industry is still deep in crisis. And the financial woes do not end there: The disclosure came as the nation's senior auditor prepared to tell Congress that the savings and loan bailout is in such disarray that its costs cannot be estimated. On the banking front, the nation's senior regulator doubled his estimates for losses to the fund that insures deposits in commercial banks.

The report that the fund could lose as much as $23.1-billion in 1991 and 1992 was tucked away in the last paragraph of a news release from L. William Seidman on the condition of the savings and loan rescue.

Seidman is the senior official for both the Federal Deposit Insurance Corp. and the Resolution Trust Corp., which oversees the savings and loan bailout.

To be sure, most regulators say the condition of the banking industry is not so grave as to require the kind of taxpayer bailout now under way to rescue the nation's savings and loans.

Today, Charles A. Bowsher, the comptroller general, is expected to tell Congress that Resolution Trust is in such disarray that it cannot be audited by the General Accounting Office and that the ultimate cost of the rescue thus cannot be calculated.

Bowsher heads the GAO, which is required by law to provide Congress with an audit of the trust corporation by the end of June every year. Its first audit was delivered last year.

Worried about the political impact of Bowsher's assessment on requests for more money for the bailout, the administration announced Monday that it had appointed the deputy secretaries of the Treasury and the Department of Housing and Urban Development to "investigate and coordinate" audits of the trust corporation.

For the FDIC fund that insures bank deposits, Treasury Secretary Nicholas F. Brady has not sought new capital, but instead has asked Congress to increase to $70-billion the fund's ability to borrow from the government.

Brady has assured Congress that taxpayers will not be counted on to repay the borrowed funds, but that they will be repaid from industry contributions and sales of assets seized from failed banks.

Earlier this year, Seidman estimated that the bank insurance fund would post losses of about $14.9-billion in 1991 and 1992 from the collapse of 340 banks.

The actual value of the insurance fund is in dispute. Seidman said that his agency's preliminary audit showed the fund was worth $8.4-billion at the end of last year.

Bowsher has said the fund is already "virtually insolvent" because it must also account for those banks that are likely to fail.

Bowsher is expected to tell the Senate Banking Committee that Resolution Trust is likely to spend significantly more than the $130-billion the Bush administration projected last year.

Brady has repeatedly predicted that the savings and loan bailout will not exceed $130-billion, counted in 1990 dollars.

The GAO has put the cost as high as $500-billion over the 40 years that the government is expected to borrow money to pay for the bailout.

In testimony prepared for delivery before the Senate Banking Committee today, Bowsher says: "The best cost estimates for resolving failed thrifts today could be significantly understated and unexpected losses on asset sales could dramatically increase RTC's funding needs sometime in the future."

A copy of the prepared testimony was obtained from an individual outside the General Accounting Office.

The problem that appears to present the greatest eventual cost to the taxpayer is the Resolution Trust Corp.'s inability to accurately measure how much it should be receiving for the assets that it is selling. Bowsher concludes that this will likely mean that much of the so-called working capital that the Resolution Trust is borrowing and expects to recoup through sales may become losses.