WASHINGTON -- The nation's senior auditor has found that the fund that protects bank deposits is in substantially worse shape than has been reported and may be worth only about half of the $8.4 billion that regulators previously calculated, a top banking official said yesterday.
L. William Seidman, chairman of the Federal Deposit Insurance Corp., said yesterday in an interview that the General Accounting Office's annual audit of the bank insurance fund, to be released Friday, would show that the fund might be worth only about $4 billion to $5 billion.
Unaudited figures presented by the FDIC at the end of 1990 indicated it was worth about $8.4 billion.
The FDIC stands behind its unaudited net worth figure of $8.4 billion. That figure already accounts for the $2.5 billion expected cost of the failure of Bank of New England and two other banks that were sold Monday to Fleet/Norstar Financial Group and Kohlberg, Kravis, Roberts & Co.
While details of the two agencies' disagreement remain sketchy, Mr. Seidman said that the FDIC had been trying to persuade auditors from the General Accounting Office that their estimate was too pessimistic and their results should be revised.
He said the GAO had come up with a substantially lower net worth figure for the fund than the FDIC had computed because the GAO found much higher liabilities. He said the GAO had come up with the larger figure because it concluded that many more banks were already effectively insolvent than the FDIC had found.
The insurance fund, created in 1934 after many banks collapsed in the Great Depression, is financed through bank premiums and protects depositors when institutions fail. The number of large bank failures in recent years has left the fund in its worst condition since it was created, and some government economists have predicted that it could become insolvent within two years.
The GAO, the investigative arm of Congress, is required by law to audit many government agencies. Its auditors have often disagreed with agencies' leaders and accountants. In the past, it has painted a more negative picture of the FDIC than the insurance corporation's officials have presented, and its assessments have generally been proved correct.
The accounting office is a non-partisan organization headed by Charles A. Bowsher, the comptroller general.
Mr. Bowsher had said the administration's plan to fix the bank insurance fund concealed the magnitude of its problems and failed to tackle its problems head-on.
Mr. Seidman said the GAO figures could add a significant impetus to Congress to act more quickly to address the problems of the fund and the banking industry.
"I don't think it will change our view that we'll need a recapitalization by the end of the fiscal year," he said, referring to this fall.