WASHINGTON -- The bank deposit insurance fund faces its most serious problems since its creation and could be wiped out by a recession or the failure of just one of the nation's biggest banks, a top government watchdog reported yesterday.
The General Accounting Office, the investigatory arm of Congress, said the $11 billion insurance fund could require a taxpayer bailout in the next few years, just as the fund that covered savings and loan losses now needs one.
"We've got a lot of situations out there that could wipe the fund out," said Charles A. Bowsher, the GAO's director. "We don't have the luxury of thinking things will work themselves out."
Under questioning at a Senate Banking Committee hearing, Mr. Bowsher said the fund could be considered insolvent now if more realistic accounting standards were used to evaluate risky loans made by banks.
The GAO assessment was one of the gloomiest yet of the Federal Deposit Insurance Corp.'s bank insurance fund, established during the Depression to restore public confidence in banks. Last week, FDIC Chairman L. William Seidman said the fund was not in imminent danger.
The insurance fund dropped from $18.3 billion in 1987 to $13.2 billion in 1989 and expects a $2 billion loss this year. That means the FDIC has only about 60 cents in reserves for every $100 in insured deposits -- the lowest level in its history and about half the level of $1.25 for every $100 in deposits mandated by Congress.
Mr. Bowsher said that even the level mandated by Congress is too low. "You have a fund today that an individual bank -- it doesn't have to be the biggest bank -- could wipe out," he said.
If the FDIC fund were wiped out, deposits up to $100,000 in insured banks still would be safe. Depositors would be reimbursed by taxpayer funds, rather than by the FDIC, which is financed by bank premiums.
Mr. Bowsher's testimony prompted committee members to draw gloomy parallels between the bank fund's condition and the state of the savings and loan insurance fund a few years ago.
"There's a kind of ominous feeling here ... [of] deja vu all over again," said Sen. John Kerry, D-Mass.
Estimates of the cost of the savings and loan bailout are as high as $500 billion. No one has suggested that a bank bailout would be as costly, but the prospect of the bank fund's requiring taxpayer assistance appeared to unnerve some lawmakers.
"If the sky is not falling, it is shaking," said Sen. Richard C. Shelby, D-Ala.
Committee Chairman Donald W. Riegle Jr., D-Mich., said Congress needs to strengthen the bank insurance fund before it adjourns in October.