Financial Services Institutions: Information for Assessing the
Government's Potential Financial Exposure (Letter Report, 06/15/98,
GAO/GGD-98-125).

Pursuant to a congressional request, GAO provided information on
selected financial services institutions, focusing on: (1) the potential
financial exposure faced by the federal government as a result of
financial services institutions sponsored, in whole or in part, by the
federal government; (2) the institutions sponsored, in whole or in part,
by the federal government or corporations within the executive branch
that engage in financial services activities; (3) the extent to which
these institutions are subject to oversight mechanisms and controls,
such as a safety and soundness regulator and coverage by various
statutes that promote accountability and control; (4) the independence
and authorities of any safety and soundness regulators for these
financial services institutions; (5) general indicators of potential
exposure that these financial services institutions pose to the federal
government, such as the maximum amount of theoretical losses associated
with an institution's credit or insurance activities; and (6) the
self-reported readiness of these institutions and regulatory efforts to
achieve year 2000 compliance.

GAO noted that: (1) a total of 22 institutions that met the criteria of
being independent corporations, sponsored in whole and in part by the
federal government, or corporations within the executive branch and
authorized to engage in activities of a financial nature; (2) the types
of financial activities in which these institutions were authorized to
engage fell into one or more of three basic categories: lending,
insurance, and secondary markets; (3) the oversight mechanisms and
controls that financial services institutions were subject to were
related to their status as government-sponsored-enterprises or
government corporations; (4) the six government-sponsored enterprises
and one of the government corporations had federal safety and soundness
regulators and were subject to external audits of their annual financial
statements; (5) the independence of, regulatory authorities of, and fees
charged by the six safety and soundness regulators of the nine
institutions varied; (6) the safety and soundness regulators for the six
government-sponsored enterprises generally had more regulatory
authorities, such as enforcement and examination powers, than the
regulators of the one government corporation and two other institutions;
(7) the primary indicators that GAO obtained on the potential exposure
posed by each of these financial services institutions to the federal
government included total assets and liabilities, total commitments and
contingencies, and explicit backing of the institution's liabilities,
commitments, and contingencies by the federal government; (8) the
institutions reported their state of readiness in achieving year 2000
compliance using five phases GAO described in its Year 2000 Assessment
Guide; (9) most of the institutions reported that they had completed the
awareness and assessment phases, which, according to the GAO assessment
guide, should have been completed by the end of August 1997; (10) work
in the other phases was either in process or not yet begun; and (11) in
addition, the regulators reported various efforts underway to ensure
that the regulated institutions would be ready for the year 2000
conversion.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-98-125
     TITLE:  Financial Services Institutions: Information for Assessing 
             the Government's Potential Financial Exposure
      DATE:  06/15/98
   SUBJECT:  Regulatory agencies
             Government sponsored enterprises
             Financial management systems
             Financial disclosure
             Federal corporations
             Lending institutions
             Insurance companies
             Systems conversions
             Government liability (legal)
             Financial statement audits
IDENTIFIER:  NCUA Year 2000 Strategy
             FDIC Year 2000 Program
             
******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.  Major          **
** divisions and subdivisions of the text, such as Chapters,    **
** Sections, and Appendixes, are identified by double and       **
** single lines.  The numbers on the right end of these lines   **
** indicate the position of each of the subsections in the      **
** document outline.  These numbers do NOT correspond with the  **
** page numbers of the printed product.                         **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************


Cover
================================================================ COVER


Report to the Chairman, Subcommittee on Financial Services and
Technology, Committee on Banking, Housing, and Urban Affairs, U.S. 
Senate

June 1998

FINANCIAL SERVICES INSTITUTIONS -
INFORMATION FOR ASSESSING THE
GOVERNMENT'S POTENTIAL FINANCIAL
EXPOSURE

GAO/GGD-98-125

Financial Services Institution Exposure

(233549)


Abbreviations
=============================================================== ABBREV

  CFOAChief Financial Officers Act
  DCI - data collection instrument
  FCR - The Federal Credit Reform Act of 1990
  FDIC - Federal Deposit Insurance Corporation
  FMFIA - Federal Managers Financial Integrity Act of 1982
  GCCA - Government Corporation Control Act of 1945
  GPRA - Government Performance and Results Act
  NCUA - National Credit Union Administration
  OMB - Office of Management and Budget
  SEC - Securities and Exchange Commission

Letter
=============================================================== LETTER


B-278877

Letter Date Goes Here

The Honorable Robert F.  Bennett
Chairman, Subcommittee on Financial
 Services and Technology
Committee on Banking, Housing, and
 Urban Affairs
United States Senate

Dear Mr.  Chairman: 

This report responds to your October 15, 1997, request for
information on selected financial services institutions. 
Specifically, you were interested in the potential financial exposure
faced by the federal government as a result of financial services
institutions sponsored, in whole or in part, by the federal
government.  As agreed with your office, this report does not cover
all the financial services activities undertaken by the federal
government.  Instead, we limited our efforts to entities established
as corporations by the federal government.  These entities could be
independent corporations, wholly or partially sponsored by the
federal government, or corporations located within the executive
branch.  Specifically, we are reporting on (1) the institutions
sponsored, in whole or in part, by the federal government or
corporations within the executive branch that engage in financial
services activities; (2) the extent to which these institutions are
subject to oversight mechanisms and controls, such as a safety and
soundness regulator and coverage by various statutes that promote
accountability and control; (3) the independence and authorities of
any safety and soundness regulators for these financial services
institutions; (4) general indicators of potential exposure that these
financial services institutions pose to the federal government, such
as the maximum amount of theoretical losses associated with an
institution's credit or insurance activities; and (5) the
self-reported readiness of these institutions and regulatory efforts
to achieve Year 2000 compliance.\1

As discussed with your office, the principal sources of data for the
financial services institutions identified in this report were the
audited annual financial statements prepared by the institutions,\2
relevant federal laws and regulations, and prior GAO reports.  We
recorded information from these sources in a standardized data
collection instrument that we then sent to the financial services
institutions for validation and to obtain missing data.  The
information related to Year 2000 readiness is largely unverified,
self-reported data obtained directly from the institutions and
regulators, except for instances where we have already assessed an
institution's Year 2000 readiness efforts in other reports.\3


--------------------
\1 The Year 2000 compliance problem involves an inherent flaw in
computer programs and database files--the absence of century
designators--that unless corrected by the end of 1999 could render
entire computer systems inoperative starting on January 1, 2000. 

\2 The audited financial statements used for this report were for
1996 because this was the most current data that was typically
available at the time of our study.  Of the 21 institutions that had
audited financial statements for 1996, all but 1 received an
unqualified opinion from their independent auditors.  An unqualified
opinion means that in the opinion of the auditors the financial
statements presented fairly the financial position, results of
operations, and cash flows for the period covered.  The independent
auditor did not express an opinion on the Commodity Credit
Corporation's 1996 financial statements due to an inability to obtain
sufficient, competent evidential matter to evaluate whether certain
irregularities that had occurred were material to the financial
statements. 

\3 See Year 2000 Computing Crisis:  Federal Deposit Insurance
Corporation's Efforts to Ensure Bank Systems Are Year 2000 Compliant
(GAO/T-AIMD-98-73, Feb.  10, 1998); and Year 2000 Computing Crisis: 
Actions Needed to Address Credit Union Systems' Year 2000 Problem
(GAO/AIMD-98-48, Jan.  7, 1998). 


   BACKGROUND
------------------------------------------------------------ Letter :1

The federal government provides, or assists in providing, a number of
diverse financial services programs to help meet identified goals. 
For example, some of these programs provide credit or loan guarantees
for housing, education, business, and the export of various products,
as well as insurance for pension plans and deposits in financial
institutions.  Federal departments or agencies directly operate some
of these financial programs.  For example, the Department of Veterans
Affairs provides direct and guaranteed loans to help veterans
purchase homes.  Similarly, the Small Business Administration
provides credit to small businesses that may be unable to secure
financing elsewhere.  Other programs are operated by special entities
created by the federal government, and they use appropriated and/or
private funds.  These entities, called financial services
institutions for the purposes of this report, are predominately
government corporations and government-sponsored enterprises. 

There are no uniform and clear criteria to define a government
corporation.\4 However, the following characteristics are referred to
by public administration experts as appropriate for government
corporations. 

  -- They are predominantly of a business nature. 

  -- They produce revenue and are potentially self-sustaining. 

  -- They involve a large number of businesslike transactions with
     the public. 

  -- They require greater flexibility than the customary type of
     appropriations budget ordinarily permits. 

These corporations can have assets wholly owned by the federal
government or have both government and private equity.  Government
corporations typically have boards of directors or advisory boards
that are to provide oversight over operations and help ensure that
the corporations comply with their government charters.\5
Collectively, federal agencies and government corporations operated
financial programs that had a face value of $6.0 trillion outstanding
in on- and off-balance sheet obligations and assets at the end of
1996, according to budget documents.  This amount included $165
billion in direct loans, $805 billion in loan guarantees, and $5.0
trillion in insurance. 

Government-sponsored enterprises provided an additional $1.7 trillion
to this total for the same period.  Government-sponsored enterprises
are federally established, privately owned and operated corporations
that were created to increase the flow of credit to specific economic
sectors.  Congress limited government-sponsored enterprises'
activities to specified economic sectors and gave them benefits, such
as exemption from Securities and Exchange Commission (SEC)
registration requirements and limited access to federal funds under
specific conditions, to help them accomplish their public missions. 
They typically receive their financing from private investment
sources. 

Government-sponsored enterprises engage in financial services
activities, such as issuing capital stock and short- and long-term
debt instruments, guaranteeing mortgage-backed securities, purchasing
loans and holding them in portfolio, funding designated activities,
and collecting fees for guarantees and other services. 
Government-sponsored enterprises generally do not receive government
appropriations.  Although the enterprises' charters state that their
obligations must include a statement that they are not guaranteed by
the United States, the enterprises' federal ties cause their
securities to receive preferential treatment in financial markets. 
For example, the enterprises generally can borrow at rates that are
only slightly above Treasury borrowing rates. 


--------------------
\4 The Office of Management and Budget (OMB) issued a memorandum
(M-96-05) on December 8, 1995, containing "Specifications for
Creating Government Corporations." In response to the concept of a
government corporation being applied inconsistently in the past, OMB
intended the specifications to provide a set of issues and
presumptions to be considered when analyzing whether programs would
benefit from the operating and financial flexibility and other normal
attributes of a government corporation. 

\5 For additional information on government corporations, see
Government Corporations:  Profiles of Existing Government
Corporations (GAO/GGD-96-14, Dec.  13, 1995). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

We identified a total of 22 institutions that met the criteria of
being independent corporations, sponsored in whole and in part by the
federal government, or corporations within the executive branch and
authorized to engage in activities of a financial nature (see app. 
I).  The types of financial activities in which these institutions
were authorized to engage fell into one or more of three basic
categories:  lending, insurance, and secondary markets.\6 Of the 22
financial services institutions covered in this report, 12 were
government corporations, 6 were government-sponsored enterprises, and
4 were other types of governmental entities.\7

The oversight mechanisms and controls that financial services
institutions were subject to were related to their status as
government-sponsored-enterprises or government corporations.  The six
government-sponsored enterprises and one of the government
corporations had federal safety and soundness regulators and were
subject to external audits of their annual financial statements.  The
other 11 government corporations reported coverage by at least 3 of
the following set of interrelated oversight mechanisms and controls: 
Offices of Inspectors General reviews, external audits of their
financial statements, the Government Performance and Results Act of
1993, and the Chief Financial Officers Act of 1990.  Of the other
four financial services institutions, two had safety and soundness
regulators, and the other two reported coverage by at least three of
the interrelated oversight mechanisms and controls. 

The independence of, regulatory authorities of, and fees charged by
the six safety and soundness regulators of the nine institutions
varied.  Two of the regulators (Federal Housing Finance Board and
Risk Management Agency) had responsibilities for certain management
or corporate governance activities of the institutions they regulated
or supervised that could potentially impair their independence.  The
safety and soundness regulators for the six government-sponsored
enterprises generally had more regulatory authorities, such as
enforcement and examination powers, than the regulators of the one
government corporation and two other institutions.  All but two of
the regulators (Risk Management Agency and SEC) had the authority to
levy assessments or fees to recoup their examination and oversight
costs.  These two regulators relied wholly or partially on
appropriated funds to pay for their oversight costs.\8

The primary indicators that we obtained on the potential exposure
posed by each of these financial services institutions to the federal
government included total assets and liabilities, total commitments
and contingencies,\9 and explicit backing of the institution's
liabilities, commitments, and contingencies by the federal
government.  Twenty-one of the institutions reported commitments and
contingencies with a face amount ranging from $5 million to $2.7
trillion in their 1996 financial statements.\10 The face amount of
exposure generally represents the maximum exposure rather than the
amount of loss considered probable or reasonably possible.  The
actual loss, even under fairly extreme economic conditions, is likely
to be significantly lower and could even be zero.  Ten of the 22
institutions reported that all or a portion of their liabilities,
commitments, and contingencies were explicitly backed by the federal
government. 

The institutions reported their state of readiness in achieving Year
2000 compliance using five phases we described in our Year 2000
Assessment Guide.\11 Most of the institutions reported that they had
completed the awareness and assessment phases, which, according to
our assessment guide, should have been completed by the end of August
1997.  Work in the other phases (renovation, validation, and
implementation) was either in process or not yet begun.  In addition,
the regulators reported various efforts under way to ensure that the
regulated institutions would be ready for the Year 2000 conversion. 


--------------------
\6 The secondary market is where securities are bought and sold after
original issuance in the primary market.  The secondary mortgage
market involves the buying, selling, and trading of existing mortgage
loans and mortgage-backed securities.  Original lenders thus are able
to sell loans in their portfolios to build liquidity to support
additional lending. 

\7 The financial services institutions categorized in this report as
government corporations were identified as such in the Government
Corporation Control Act (31 U.S.C.  9101, et seq.) or in enabling
legislation. 

\8 SEC funds its operations almost entirely through fees levied on
the securities industry.  In fiscal year 1997, SEC received $38
million in appropriations, and the remainder of its new budget
authority ($262 million) came from fee collections. 

\9 Contingencies are defined as an existing condition, situation, or
set of circumstances that involves uncertainty as to a possible loss
that will be resolved when one or more future events occur (or fail
to occur).  Contingencies are generally categorized as probable,
reasonably possible, or remote.  Contingencies categorized as
probable and for which the amount of loss can be reasonably estimated
are required to be recorded in the financial statements.  If no
accrual is made, disclosure of the contingency is required in the
notes to the financial statements when there is a reasonable
possibility that a loss may have been incurred, or when the loss is
probable but the amount is not measurable.  Commitments are long-term
contracts, such as leases and undelivered orders, that represent
obligations.  These obligations become liabilities when all actions
required under the contracts have been fulfilled. 

\10 One of the financial services institutions covered by this
report, the Alternative Agricultural Research and Commercialization
Corporation, did not complete its first full year in operation as a
wholly-owned government corporation until fiscal year 1997. 

\11 Year 2000 Computing Crisis:  An Assessment Guide
(GAO/AIMD-10.1.14, September 1997). 


   CHARACTERISTICS OF FINANCIAL
   SERVICES INSTITUTIONS
------------------------------------------------------------ Letter :3

We identified a total of 22 financial services institutions as being
appropriate for this study; the type of financial services the
institutions were authorized to engage in; and whether the
institution was a government corporation, a government-sponsored
enterprise, or another type of government entity (see table 1).\12 Of
the 22 financial services institutions, 11 were authorized to engage
in lending activities, such as direct loans and loan guarantees; 9
were authorized to provide insurance protection, such as deposit or
crop insurance; and 7 were authorized to perform secondary market
activities, such as purchasing and assembling existing loans into
pools for investors or for their portfolios.  (As shown in table 1, a
number of financial services institutions were authorized to engage
in more than one category of financial services activity.)

Of the 22 financial services institutions we identified, 12 were
government corporations.  All but two of the government
corporations--the Federal Deposit Insurance Corporation (FDIC) and
National Credit Union Administration (NCUA)--were categorized by
statute as being wholly owned corporations.  FDIC was categorized as
a mixed-ownership government corporation as was the National Credit
Union Central Liquidity Facility, which is administered by NCUA.  Six
of the 22 financial services institutions were privately owned
government-sponsored enterprises.\13 Four institutions were included
in the "other" category:  a federally chartered private financial
institution (National Consumer Cooperative Bank); an independent
government-controlled corporation (Farm Credit System Insurance
Corporation); a nonprofit, membership corporation (Securities
Investor Protection Corporation); and a nonprofit, public corporation
(Neighborhood Reinvestment Corporation).  See appendix I for
additional information on the purposes and funding sources of the
financial services institutions covered in this report. 



                                Table 1
                
                    Financial Services Institutions

                                          Financial services
Institution name                          authorized
----------------------------------------  ----------------------------
Government corporations
----------------------------------------------------------------------
Alternative Agricultural Research and     direct loans, other (equity
Commercialization Corporation             investments)

Commodity Credit Corporation              direct loans, guaranteed
                                          loans

Community Development Financial           grants, direct loans, other
Institutions Fund                         (equity investments)

Export-Import Bank of the United States   direct loans, insurance,
                                          guaranteed loans

Federal Crop Insurance Corporation        insurance, other
                                          (reinsurance)

Federal Deposit Insurance Corporation     insurance

Federal Housing Administration            direct loans, guaranteed
                                          loans

Government National Mortgage Association  guaranteed mortgage-backed
                                          securities, secondary market

National Credit Union Administration\a    direct loans, insurance

Overseas Private Investment Corporation   direct loans, guaranteed
                                          loans, insurance

Pension Benefit Guaranty Corporation      insurance

Rural Telephone Bank                      direct loans


Government-sponsored enterprises
----------------------------------------------------------------------
Farm Credit System                        direct loans, insurance

Federal Agricultural Mortgage             guaranteed mortgage-backed
Corporation                               securities, secondary market

Federal Home Loan Banks                   direct loans

Federal Home Loan Mortgage Corporation    guaranteed mortgage-backed
                                          securities, secondary market

Federal National Mortgage Association     guaranteed mortgage-backed
                                          securities, secondary market

Student Loan Marketing Association        secondary market


Other institutions
----------------------------------------------------------------------
Farm Credit System Insurance Corporation  insurance

National Consumer Cooperative Bank        direct loans, guaranteed
                                          loans, secondary market

Neighborhood Reinvestment Corporation     secondary market, other
                                          (grants, operating
                                          subsidies)

Securities Investor Protection            insurance
Corporation
----------------------------------------------------------------------
\a The National Credit Union Administration, a federal agency,
administers the National Credit Union Central Liquidity Facility
(government corporation) and a deposit insurance fund (other). 

Source:  Financial services institutions listed above. 


--------------------
\12 We identified three additional institutions (African Development
Foundation, Presidio Trust, and National Sheep Industry Improvement
Center) as having the authority to provide financial services. 
However, they are not covered in this report, because they were not
actively engaged in such activities at the time of our study. 

\13 One of the government-sponsored enterprises, the Student Loan
Marketing Association, is in the process of converting into a fully
private entity.  Pursuant to authority of the Student Loan and
Marketing Association Act of 1996, the Association's shareholders
approved a reorganization plan that resulted in the shares of the
government-sponsored enterprise being converted on a one-for-one
basis to shares of the SLM Holding Corporation, a Delaware
corporation, on August 7, 1997.  The Student Loan Marketing
Association must wind down its operations as a government-sponsored
enterprise by September 20, 2008. 


   OVERSIGHT MECHANISMS AND
   CONTROLS
------------------------------------------------------------ Letter :4

To determine the extent of oversight that these financial services
institutions were subject to, we obtained from the institutions
information on their coverage by, or their voluntary adherence to,
selected oversight mechanisms and controls.  Specifically, the
financial institutions reported whether there was a federal safety
and soundness regulator, independent annual financial audits, Office
of Inspector General (OIG) authority to perform reviews,\14 and/or
coverage by selected federal laws that address management and
financial accountability and performance issues (see table 2).  All
of the institutions reported full or partial coverage by at least two
of the five selected oversight mechanisms and controls. 
Government-sponsored enterprises all had a safety and soundness
regulator, but the government corporations tended to be subject to
other oversight mechanisms and controls. 

All six of the government-sponsored enterprises had federal safety
and soundness regulators.  Five of these six institutions reported
not being covered by OIG authority, and all six reported not being
subject to or voluntarily adhering to the Government Performance and
Results Act of 1993 (GPRA) and the Chief Financial Officers (CFO) Act
of 1990.\15 As agreed with your office, we did not independently
determine the applicability of the federal statutes to the
institutions. 

In contrast to the government-sponsored enterprises, most of the
government corporations reported coverage by OIG audits and full or
partial adherence to GPRA and the CFO Act, which were intended to
promote accountability and control.  Only one of the government
corporations, the Federal Crop Insurance Corporation, reported having
a safety and soundness regulator. 

Of the four other financial services institutions, two (the National
Consumer Cooperative Bank and the Securities Investor Protection
Corporation) reported having federal safety and soundness regulators. 
The remaining two institutions (the Farm Credit System Insurance
Corporation and Neighborhood Reinvestment Corporation) reported
coverage by at least three of the four other oversight mechanisms and
controls. 

All of the financial services institutions had independent audits of
their annual financial statements by either certified public
accounting firms, Offices of Inspectors General, or GAO.  See
appendixes II and III for additional information on the 22 financial
services institutions' coverage by, or voluntary adherence to,
various oversight mechanisms and controls, including their adherence
to selected federal statutes. 



                                     Table 2
                     
                        Reported Coverage or Adherence of
                        Financial Services Institutions to
                        Selected Oversight Mechanisms and
                                     Controls

Institutio  Federal       External                    GPRA          CFO Act
n name      regulator     audit         OIG review    adherence     adherence
----------  ------------  ------------  ------------  ------------  ------------
Government corporations
--------------------------------------------------------------------------------
Alternativ  No            Yes           Yes           Yes           Yes
e
Agricultur
al
Research
and
Commercial
ization
Corporatio
n

Commodity   No            Yes           Yes           Yes           Partial\a
Credit
Corporatio
n

Community   No            Yes           Yes           Yes           Yes
Developmen
t
Financial
Institutio
ns Fund

Export-     No            Yes           No            Yes           Yes
Import
Bank of
the United
States

Federal     Yes           Yes           Yes           Yes           Yes
Crop
Insurance
Corporatio
n

Federal     No            Yes           Yes           Yes\b         Yes\c
Deposit
Insurance
Corporatio
n

Federal     No            Yes           Yes           Yes           Yes
Housing
Administra
tion

Government  No            Yes           Yes           Yes           Yes
National
Mortgage
Associatio
n

National    No            Yes           Yes           Yes           Yes
Credit
Union
Administra
tion

Overseas    No            Yes           Yes           Yes           Partial\a,c
Private
Investment
Corporatio
n

Pension     No            Yes           Yes           Yes           Partial\a
Benefit
Guaranty
Corporatio
n

Rural       No            Yes           Yes           Yes           Yes
Telephone
Bank


Government-sponsored enterprises
--------------------------------------------------------------------------------
Farm        Yes           Yes           No            No            No
Credit
System

Federal     Yes           Yes           No            No            No
Agricultur
al
Mortgage
Corporatio
n

Federal     Yes           Yes           No            No            No
Home Loan
Banks

Federal     Yes           Yes           No            No            No
Home Loan
Mortgage
Corporatio
n

Federal     Yes           Yes           No            No            No
National
Mortgage
Associatio
n

Student     Yes           Yes           No            No            No
Loan
Marketing
Associatio
n

Other
institutio
ns

Farm        No            Yes           No            Yes           Yes\c
Credit
System
Insurance
Corporatio
n

National    Yes           Yes           No            No            No
Consumer
Cooperativ
e Bank

Neighborho  No            Yes           No            Yes\c         Yes\c
od
Reinvestme
nt
Corporatio
n

Securities  Yes           Yes           No            No            No
Investor
Protection
Corporatio
n
--------------------------------------------------------------------------------
\a The term partial was used to describe institutions that indicated
they were covered by or voluntarily adhered to only selected
requirements of a federal statute. 

\b FDIC is required under GPRA to submit a strategic plan for program
activities to OMB, but certain provisions of the act do not apply to
FDIC. 

\c Institution indicated that it voluntarily adhered to the statute. 

Source:  Financial services institutions listed above. 


--------------------
\14 The Inspectors General Act of 1978 (P.L.  95-452) established
Offices of Inspector General to create independent and objective
units to (1) conduct and supervise audits and investigations relating
to programs and operations; (2) recommend policies and procedures to
promote economy, efficiency, and effectiveness; (3) prevent and
detect fraud and abuse in such programs and operations; and (4)
provide a means for keeping the head of the establishment and
Congress fully and currently informed about problems and deficiencies
relating to the administration of such programs and operations and
the necessity for and progress of corrective action. 

\15 GPRA was intended to improve the efficiency and effectiveness of
federal programs by establishing a system to set goals for program
performance and to measure results.  Specifically, GPRA requires the
preparation of multiyear strategic plans, annual performance plans,
and annual performance reports.  The CFO Act, as amended, requires
the preparation and audit of annual financial statements. 
Additionally, the CFO Act set expectations for (1) the deployment of
modern systems to replace existing antiquated, often manual
processes; (2) the development of better performance and cost
measures; and (3) the design of results-oriented reports on the
government's financial condition and operating performance by
integrating budget, accounting, and program information. 


   REGULATORY INDEPENDENCE,
   AUTHORITY, AND FEES
------------------------------------------------------------ Letter :5

For the nine institutions with federal safety and soundness
regulators, we obtained information on the regulators' independence,
regulatory authorities, and fees.\16 There were six safety and
soundness regulators for the nine institutions (two of the regulators
had responsibility for two or more of the financial services
institutions), and their independence and regulatory authorities
varied.  With respect to regulatory authorities, the
government-sponsored enterprises' regulators (Department of the
Treasury, Farm Credit Administration for the Farm Credit System and
the Federal Agricultural Mortgage Corporation, Federal Housing
Finance Board, and Office of Federal Housing Enterprise Oversight)
tended to have more authority than the government corporation
regulator (Risk Management Agency) and the other entities' regulators
(Farm Credit Administration for the National Consumer Cooperative
Bank and SEC).  All of the government-sponsored enterprises'
regulators and one of the other entity regulators were able to levy
fees on the regulated financial services institution, but the other
two regulators relied wholly or partially on appropriated funds to
pay for their oversight expenses. 

Two of the six safety and soundness regulators (Federal Housing
Finance Board and Risk Management Agency) had responsibilities for
corporate and management governance activities that could potentially
impair their independence.  In prior reports, we identified
independence and objectivity as key criteria for effective regulatory
oversight.\17

Specifically, we reported that regulators should have an arm's-length
relationship with the regulated institution to ensure objectivity in
assessing and controlling an institution's risk-taking activities. 
As we noted in our 1997 report, the Federal Housing Finance Board
cannot be considered to be an arm's-length regulator, because it is
involved in the corporate governance or management of the Federal
Home Loan Banks.  For example, the Federal Housing Finance Board is
responsible for appointing six directors to each Federal Home Loan
Bank's board and preparing the Federal Home Loan Bank System's annual
financial statements.  Likewise, the Risk Management Agency lacked an
arm's-length relationship with the Federal Crop Insurance
Corporation.  The Federal Agricultural Improvement and Reform Act of
1996\18 established the functions of the Office of Risk Management
(now the Risk Management Agency) as supervising the Federal Crop
Insurance Corporation and administering and overseeing all aspects of
the programs authorized by the Federal Crop Insurance Act.  Thus, the
Risk Management Agency is responsible for the day-to-day operations
of the Federal Crop Insurance Corporation. 

As a group, the government-sponsored enterprises regulators tended to
have more authority than the other regulators (see table 3).  The
greatest variation in the powers of these regulators related to
enforcement powers and the authority to establish rules and
regulations governing the regulated institutions' operations.  For
example, only the Farm Credit Administration and Office of Federal
Housing Enterprise Oversight had the specific authority to take
formal enforcement actions, such as issuing cease and desist orders
or assessing civil money penalties.  See appendix IV for additional
detail regarding the enforcement authorities of the six regulators. 



                                     Table 3
                     
                     Regulatory and Supervisory Authority of
                      the Six Financial Services Institution
                                    Regulators

Regulator:
regulated
financial
services    Rules and                   Minimum
institutio  regulation    Exam          capital       Enforcement   Assessment
n           authority     authority     standards     authority     authority
----------  ------------  ------------  ------------  ------------  ------------
Department of the Treasury
--------------------------------------------------------------------------------
Student     No            Yes           Not           Limited\c     Yes
Loan                                    applicable\b
Marketing
Associatio
n


Farm Credit Administration
--------------------------------------------------------------------------------
Farm        Yes           Yes           Yes           Yes           Yes
Credit
System

Federal     Yes           Yes           Yes           Yes           Yes
Agricultur
al
Mortgage
Corporatio
n

National    No            Yes           No            No            Yes
Consumer
Cooperativ
e Bank

Federal     Yes           Yes           Yes           Limited\c     Yes
Housing
Finance
Board

Federal
Home Loan
Banks


Office of Federal Housing Enterprise Oversight
--------------------------------------------------------------------------------
Federal     Yes           Yes           Yes           Limited\c     Yes
Home Loan
Mortgage
Corporatio
n

Federal     Yes           Yes           Yes           Limited\c     Yes
National
Mortgage
Associatio
n


Risk Management Agency
--------------------------------------------------------------------------------
Federal     Yes           Not           No            Not           No
Crop                      applicable\a                applicable\a
Insurance
Corporatio
n


Securities and Exchange Commission
--------------------------------------------------------------------------------
Securities  Yes           Yes           Yes           No            No
Investor
Protection
Corporatio
n
--------------------------------------------------------------------------------
Note:  Shaded cells used to identify government-sponsored
enterprises. 

\a In addition to its supervision and oversight responsibilities, the
Risk Management Agency is responsible for administering the Federal
Crop Insurance Corporation's programs. 

\b Minimum capital standards were established in legislation. 

\c Regulator did not have all six formal enforcement authorities (see
app.  IV). 

Source:  Federal regulators listed above. 

Four of the six regulators had the authority to levy assessments or
fees on the financial services institution to recoup the costs
associated with performing safety and soundness oversight of the
institution (see table 4).  The other two regulators (Risk Management
Agency and SEC) relied wholly or partially on appropriated funds to
pay for their oversight costs and activities. 



                                     Table 4
                     
                     Federal Regulators' Assessments and Fee
                                    Authority

Regulator: Regulated      Assessments                              Amount
financial services        and/or fee                               collected (FY
institution               authority      Basis (formula) used      1997)
------------------------  -------------  ------------------------  -------------
Department of the
Treasury:
                          Yes            Assessments cover         $0.8 million
Student Loan Marketing                   reasonable costs and
Association                              expenses not to exceed
                                         $800,000 as adjusted by
                                         the Consumer Price
                                         Index.


Farm Credit Administration:
--------------------------------------------------------------------------------
Farm Credit System        Yes            Assessments of banks,     $37.1
                                         associations, and Farm    million
                                         Credit Services Leasing
                                         Corporation cover
                                         administrative costs and
                                         maintain a reserve and
                                         are levied on the basis
                                         of average risk-
                                         adjusted asset size
                                         subject to an adjustment
                                         for supervisory rating.
                                         Other system entities
Federal Agricultural      Yes            are assessed for direct
Mortgage                                 expenses, an allocated    $0.3 million
Corporation                              portion of indirect
                                         expenses, and amounts
                                         necessary to maintain a
                                         reserve.

                                         Assessments cover
                                         estimated cost of
                                         regulation, supervision,
                                         and examination.

National Consumer         Yes            Reimbursement for the     $0.1 million
Cooperative Bank                         costs of conducting any
                                         examination or audit.

Federal Housing Finance
Board:                    Yes            Assessments cover         $15.7 million
                                         expenses and are levied
Federal Home Loan Banks                  on the basis of each
                                         bank's total paid-in
                                         value of its capital
                                         stock relative to the
                                         total paid-in value of
                                         the system's capital
                                         stock.

Office of Federal
Housing Enterprise
Oversight:
                          Yes            Assessments cover         $9.2 million
Federal National                         reasonable costs and
Mortgage                                 expenses, including
Corporation               Yes            examination, and are      $6.3 million
                                         levied on the basis of
Federal Home Loan                        the ratio of each
Mortgage                                 enterprise's total
Corporation                              assets to total combined
                                         assets of both
                                         enterprises.

Risk Management Agency:
                          No             Not applicable.           Not
Federal Crop Insurance                                             applicable
Corporation

Securities and Exchange
Commission:               No\a           Not applicable.           Not
                                                                   applicable
Securities Investor
Protection
Corporation
--------------------------------------------------------------------------------
Note:  Shaded cells used to identify government-sponsored
enterprises. 

\a SEC levies fees on the securities industry and not directly on the
Securities Investor Protection Corporation. 

Source:  Federal regulators listed above. 


--------------------
\16 Two of the financial services institutions covered by this report
(FDIC and NCUA) are themselves regulators of banks and credit unions,
respectively.  Our analysis did not address FDIC's and NCUA's
regulatory independence, authority, and fees but focused on the
safety and soundness regulators of the 22 financial services
institutions specifically identified in this report. 

\17 See Government-Sponsored Enterprises:  A Framework for Limiting
the Government's Exposure to Risks (GAO/GGD-91-90, May 22, 1991); and
Government-Sponsored Enterprises:  Advantages and Disadvantages of
Creating a Single Housing GSE Regulator (GAO/GGD-97-139, July 9,
1997). 

\18 Public Law 104-127, Apr.  4, 1996. 


   INDICATORS OF POTENTIAL
   EXPOSURE
------------------------------------------------------------ Letter :6

Congress created the government corporations, government-sponsored
enterprises, and other financial services institutions discussed in
this report to provide direct and indirect benefits to society, such
as increased home ownership and insurance against certain losses. 
Meeting these societal goals often means that the institutions'
programs and activities create potential exposure to losses that a
private sector financial services institution would not assume.  In
some credit programs, the federal government bears the risk for less
creditworthy borrowers, often giving credit for longer periods or at
a lower cost to the borrower than would the private market.  Many
federal insurance programs cover complex, case-specific, or
catastrophic risks that the private sector has historically been
unwilling or unable to cover.  For example, in some insurance
programs, the federal government provides coverage against depositor
losses up to a specified amount from failures of insured institutions
or insures most defined-benefit pension plans sponsored by private
employers in accordance with certain prescribed coverage and payment
limits and restrictions.\19

To obtain a general indication of the potential exposure these
financial services institutions pose to the federal government, we
asked the institutions to provide information on (1) assets and
liabilities from their audited 1996 financial statements; (2)
commitments and contingencies reported in the notes to the 1996
financial statements; (3) explicit government backing of the
institution's liabilities, commitments, and contingencies; and (4)
other financial information, such as borrowing authority (see table 5
and app.  V).  It is important to note that the figures reported as
commitments and contingencies, and any federal backing thereof,
generally represent the broadest possible measure of the potential
exposure these financial services institutions could pose to the
federal government not the loss considered probable or reasonably
possible. 

The issue of explicit versus perceived federal government
responsibility must also be considered.  Of the 12 government
corporations, 9 reported that their liabilities, commitments, and
contingencies were in whole or in part explicitly guaranteed or
backed by the federal government.  The federally guaranteed portion
of the government corporations' liabilities, commitments, and
contingencies ranged from 100 percent (five corporations), specific
portions (three corporations), to a specific maximum amount (one
corporation).  Of the institutions categorized as other, only the
Farm Credit System Insurance Corporation reported a federal guarantee
for a portion of its liabilities, commitments, and contingencies.\20
None of the government-sponsored enterprises, which are privately
owned, reported an explicit federal government liability for their
obligations.  However, although an institution's charter may state
that its obligations are not guaranteed by the United States
government, the institution's federal ties may cause creditors to
believe that the federal government would not allow the institution
to default on its obligations.  As we noted in past work,
government-sponsored enterprises can generally borrow at rates that
are only slightly above Treasury borrowing rates, largely due to the
market's perception of an implicit federal guarantee.\21 And, the
government has intervened in the past to strengthen the position of
some troubled government-sponsored enterprises absent any formal
obligation to do so.\22 Whether the federal government would
intervene if such an institution were to become financially troubled
would depend on a variety of complicated and specific circumstances. 

Twenty-one of the financial services institutions reported
commitments and contingencies with a face amount ranging from $5
million to $2.7 trillion in their 1996 financial statements (see
table 5).\23 The commitments and contingent liability amounts shown
reflect the maximum theoretical exposure to the federal government. 
The actual loss, even under fairly extreme economic conditions, is
likely to be significantly lower and could even be zero.  For
example, FDIC reported $2.7 trillion in total commitments and
contingencies.  This number primarily represents the total amount of
FDIC-insured deposits and would be the accounting loss that would
occur if all depository institutions failed and the assets acquired
as a result of the resolution process provided no recoveries.  As of
December 31, 1996, the assets of all FDIC-insured institutions
totaled $5.6 trillion, and the combined equity capital of these
institutions was $461 billion.  Moreover, the deposit insurance fund
held $35.7 billion that would be available to cover losses to the
insurance fund.  Of the $2.7 trillion of maximum loss exposure, FDIC
estimated $180 million as the amount of losses "for which the risk
was less than certain but still considered reasonably possible", and
an additional $79 million as the amount of loss deemed probable. 

Another illustration of the need to use caution in interpreting and
using the total commitments and contingencies data presented in table
5 is the Overseas Private Investment Corporation.  Of the $37.6
billion in total commitments and contingencies reported by the
Overseas Private Investment Corporation, $31.4 billion represented
the total face value of the three types of political risk investment
insurance it provides (inconvertibility of currency, expropriation,
and political violence).  Investors may obtain all three coverages,
but claim payments may not exceed the single highest coverage amount. 
In addition, claim payments are limited or reduced for other factors,
such as stop-loss agreements and recoveries from other sources. 
Taking these and other factors into consideration, the Overseas
Private Investment Corporation estimated that its "current exposure
to claims" or reasonably possible loss for its political risk
insurance program was $6.4 billion, and an additional $103 million as
the amount of loss deemed probable. 



                                     Table 5
                     
                          Financial Services Institution
                      Indicators of Potential Exposure Based
                         on the 1996 Financial Statements

                              (Dollars in millions)

                                                         Explicit    Commitments
                                                          federal            and
Institution Name             Assets    Liabilities        backing  contingencies
--------------------  -------------  -------------  -------------  -------------
Government corporations
--------------------------------------------------------------------------------
Alternative                  N.A.\a         N.A.\a            Yes         N.A.\a
 Agricultural
 Research and
 Commercialization
 Corporation
Commodity Credit            $17,874        $15,810            Yes        $36,954
 Corporation
Community                        93             10            Yes             39
 Development
 Financial
 Institutions Fund
Export-Import Bank           11,958          9,985            Yes         55,809
 of the United
 States
Federal Crop                  2,756          1,827             No         26,800
 Insurance
 Corporation
Federal Deposit              48,130          5,579            Yes      2,691,951
 Insurance
 Corporation
Federal Housing              20,521         24,364            Yes        434,833
 Administration
Government National           5,042            509            Yes      529,600\b
 Mortgage
 Association
National Credit               4,326            179            Yes        275,543
 Union
 Administration
Overseas Private              3,081            391            Yes      37,622\c\
 Investment
 Corporation
Pension Benefit              12,548         11,555             No    1,093,151\d
 Guaranty
 Corporation
Rural Telephone Bank          1,916            552            Yes            880

Government-sponsored enterprises
--------------------------------------------------------------------------------
Farm Credit System          $73,254        $62,664             No        $41,958
Federal Agricultural            603            556             No            254
 Mortgage
 Corporation
Federal Home Loan           292,035        275,159             No        333,909
 Banks
Federal Home Loan           173,866        167,135             No        597,765
 Mortgage
 Corporation
Federal National            351,041        338,268             No        782,000
 Mortgage
 Association
Student Loan                 47,630         46,582             No         60,237
 Marketing
 Association

Other institutions
--------------------------------------------------------------------------------
Farm Credit System           $1,169           $130           No\e        $62,092
 Insurance
 Corporation
National Consumer               839            714             No            107
 Cooperative Bank
Neighborhood                      6              4             No             10
 Reinvestment
 Corporation
Securities Investor           1,053             31             No              5
 Protection
 Corporation
--------------------------------------------------------------------------------
\a Not applicable.  The Corporation did not begin operation as a
wholly owned government corporation until fiscal year 1997. 

\b The figure shown for the Government National Mortgage Association
consists primarily of $497 billion in guaranteed mortgage-backed
securities it had outstanding as of September 30, 1996.  However, the
Government National Mortgage Association's potential loss exposure is
considerably less because the underlying mortgages serve as primary
collateral, and the required Federal Housing Administration, Rural
Housing Service, and Department of Veterans Affairs insurance or
guarantee of the individual mortgage loans serves to indemnify the
Government National Mortgage Association for most losses.  The
Government National Mortgage Association estimated the amount of loss
deemed probable for its mortgage-backed securities program as $472
million. 

\c The amount shown for the Overseas Private Investment Corporation
is based on a total face value of $31.4 billion for the three types
of political risk investment insurance coverages it offers. 
Investors may obtain all three coverages, but claim payments may not
exceed the single highest coverage.  Assuming that claim payments
would not exceed the single highest coverage, the Overseas Private
Investment Corporation estimated that its maximum exposure to
insurance claims was $13.4 billion.  The $13.4 billion is the amount
that is governed by the statutory limitation on its issuance of
insurance. 

\d Data on the face value of insurance exposure was obtained from the
Office of Management and Budget.  The Pension Benefit Guaranty
Corporation reported that the total unfunded vested benefits on
single-employer plans that represent reasonably possible exposure
ranged from $22 billion to $26 billion.  In addition, it estimated
that it was reasonably possible that multiemployer plans may require
an additional $243 million in future financial assistance. 

\e The only portion of the Farm Credit System Insurance Corporation's
liabilities with explicit federal backing was $1.26 billion in
Financial Assistance Corporation bonds.  As of December 31, 1997, the
System had provided for the repayment of approximately $0.7 billion
of the assistance bonds outstanding.  In addition, the System is
making annual annuity-type payments going forward that will
eventually accumulate funds to repay all bonds. 

Source:  Financial services institutions listed above unless
otherwise indicated. 


--------------------
\19 Defined-benefit plans are pension plans set up by an employer or
several employers to pay a determinable pension benefit, usually
based on factors such as age, years of service, and salary.  In
contrast, defined contribution plans--which the Pension Benefit
Guaranty Corporation does not insure--specify the amount of
contribution to be made to the plan for each employee.  Benefits at
retirement are those contributions plus whatever has been earned on
them. 

\20 The Farm Credit System Insurance Corporation's liabilities
include $1.26 billion in U.S.  Treasury guaranteed bonds outstanding
that were issued by the Financial Assistance Corporation during 1988
to 1990 to carry out a program of assistance to Farm Credit System
banks.  These obligations are categorized in the President's Budget
as federal loans to the Farm Credit System.  As of December 31, 1997,
the System had provided for the repayment of approximately $0.7
billion of the assistance bonds outstanding.  In addition, the System
is making annual annuity-type payments going forward that should
eventually accumulate funds to repay all bonds. 

\21 Housing Enterprises:  Potential Impacts of Severing Government
Sponsorship (GAO/GGD-96-120, May 13, 1996). 

\22 For example, the federal government intervened when the Farm
Credit System faced severe financial stress in the 1980s.  Congress
authorized up to $4 billion in federal assistance despite the fact
that the system's enabling legislation clearly states that its
obligations are not guaranteed by the U.S.  government as to
principal or interest.  The federal government provided less direct
support to the Federal National Mortgage Association in 1982 in the
form of changes to its income tax treatment and regulatory
forbearance of its troubled condition.  See Farm Credit System: 
Repayment of Federal Assistance and Competitive Position
(GAO/GGD-94-39, March 10, 1994); and Government-Sponsored
Enterprises:  A Framework for Limiting the Government's Exposure to
Risks (GAO/GGD-91-90, May 22, 1991). 

\23 The remaining institution did not begin operation as a government
corporation until fiscal year 1997. 


   READINESS IN ACHIEVING YEAR
   2000 COMPLIANCE
------------------------------------------------------------ Letter :7

We surveyed both the financial services institutions and the relevant
regulators on Year 2000 compliance efforts.  The 22 financial
services institutions provided information regarding their status in
achieving Year 2000 compliance using the 5 readiness phases and the
corresponding recommended schedule for completing each phase that we
described in our recent Year 2000 Assessment Guide (see table 6). 
There were no significant differences among the types of financial
services institutions and their reported readiness.  A number of the
institutions reported that they had their Year 2000 readiness
assessed by external auditors or other independent outside entities. 

The awareness phase includes such activities as defining the Year
2000 problem, gaining executive level support and sponsorship,
establishing a team, and developing an overall strategy.  The
recommended completion date for the awareness phase was December
1996.\24 All 22 institutions reported completing this phase. 

The assessment phase includes assessing the Year 2000 impact on the
institution, identifying core business areas and processes, analyzing
systems supporting the core business areas, and setting priorities
for their conversion or replacement.  The recommended completion date
for the assessment phase was August 1997.  Sixteen of the 22
institutions reported they had completed this phase.  The remaining
six institutions reported that this phase was in progress. 

The majority of the institutions were in the process of completing
the renovation, validation, and implementation phases.  The
renovation phase includes such activities as converting, replacing,
or eliminating selected platforms, applications, databases, and
utilities.  The recommended completion date for the renovation phase
is August 1998.  The validation phase includes testing, verifying,
and validating converted or replaced platforms, applications,
databases, and utilities and testing them in an operational
environment.  The implementation phase includes implementing the
converted or replaced platforms, applications, databases, utilities,
and interfaces.  According to our recommended schedule, both the
validation and implementation phase activities are to be performed on
or by December 1999. 



                                     Table 6
                     
                       Year 2000 Readiness Phase of the 22
                         Financial Services Institutions

                                      Readiness phase
            --------------------------------------------------------------------
Institutio
n name      Aware         Assess        Renovate      Validate      Implement
----------  ------------  ------------  ------------  ------------  ------------
Government corporations
--------------------------------------------------------------------------------
Alternativ  Completed     Completed     Completed     Completed     In progress
e
Agricultur
al
Research
and
Commercial
ization
Corporatio
n\a

Commodity   Completed     In progress   In progress   In progress   In progress
Credit
Corporatio
n

Community   Completed     In progress   Not begun     Not begun     Not begun
Developmen
t
Financial
Institutio
ns Fund

Export-     Completed     Completed     In progress   In progress   In progress
Import
Bank

Federal     Completed     Completed     In progress   Not begun     In progress
Crop
Insurance
Corporatio
n

Federal     Completed     In progress   In progress   In progress   In progress
Deposit
Insurance
Corporatio
n\a

Federal     Completed     Completed     In progress   In progress   In progress
Housing
Administra
tion

Government  Completed     In progress   In progress   In progress   In progress
National
Mortgage
Associatio
n

National    Completed     Completed     In progress   In progress   In progress
Credit
Union
Administra
tion\a

Overseas    Completed     In progress   Not begun     Not begun     Not begun
Private
Investment
Corporatio
n\a

Pension     Completed     Completed     In progress   In progress   In progress
Benefit
Guaranty
Corporatio
n\a

Rural       Completed     Completed     Completed     In progress   Not begun
Telephone
Bank


Government-sponsored enterprises
--------------------------------------------------------------------------------
Farm        Completed\b   Completed\b   In            In            In
Credit                                  progress\b    progress\b    progress\b
System

Federal     Completed     Completed     In progress   Not begun     Not begun
Agricultur
al
Mortgage
Corporatio
n

Federal     Completed     Completed     In progress   In progress   In progress
Home Loan
Banks

Federal     Completed     In progress   In progress   In progress   In progress
Home Loan
Mortgage
Corporatio
n

Federal     Completed     Completed     In progress   In progress   In progress
National
Mortgage
Associatio
n

Student     Completed     Completed     In progress   In progress   In progress
Loan
Marketing
Associatio
n


Other institutions
--------------------------------------------------------------------------------
Farm        Completed     Completed     Completed     In progress   In progress
Credit
System
Insurance
Corporatio
n\a

National    Completed     Completed     In progress   In progress   Not begun
Consumer
Cooperativ
e Bank

Neighborho  Completed     Completed     In progress   Not begun     In progress
od
Reinvestme
nt
Corporatio
n\a

Securities  Completed     Completed     In progress   In progress   In progress
Investor
Protection
Corporatio
n
--------------------------------------------------------------------------------
\a Institution either had or planned an external assessment of its
Year 2000 status. 

\b Data provided by the Farm Credit System's regulator, the Farm
Credit Administration. 

Source:  Financial services institutions listed above except as
otherwise noted. 

We asked each of the six regulators what actions they had taken to
ensure that their regulated financial services institutions would be
in compliance with the Year 2000 computer conversion (see table 7). 
The reported data indicated that the regulators had extensive efforts
under way to monitor the Year 2000 conversion efforts of regulated
institutions.  These efforts range from issuing guidance to requiring
external auditor reviews or performing examinations on the
institution's Year 2000 compliance status. 



                                     Table 7
                     
                     Regulators' Actions to Address Year 2000
                              Readiness of Entities

                               Year 2000 conversion efforts
          ----------------------------------------------------------------------
                      Developed   Required
                      examinatio  external    Conducted
Regulato  Issued      n           auditor     examinatio  Required
r         guidance    procedures  reviews     ns          reports     Other
--------  ----------  ----------  ----------  ----------  ----------  ----------
Departme
nt of
the       No          No          No          No          Yes         Meetings
Treasury                                                              held with
:                                                                     Year 2000
                                                                      project
Student                                                               team
Loan
Marketin
g
Associat
ion

Farm
Credit
Administ  Yes         Yes         Yes         Yes         Yes         Task force
ration                                                                and
                                                                      database
Farm                                                                  establishe
Credit    Yes         Yes         Yes         Yes         Yes         d
System
                                                                      No
          Yes         Yes         Yes         Planned     Yes
                                              for 1998
Federal                                                               No
Agricult
ural
Mortgage
Corporat
ion

National
Consumer
Cooperat
ive Bank

Federal
Housing
Finance
Board:    Yes         Yes         Yes         Yes         Yes         Newsletter
                                                                      s,
Federal                                                               meetings
Home                                                                  with
Loan                                                                  internal
Banks                                                                 auditors
                                                                      and
                                                                      informatio
                                                                      n
                                                                      technology
                                                                      directors

Office
of
Federal
Housing
Enterpri  Yes         Yes         No          Yes         Yes         Quarterly
se                                                                    briefings
Oversigh
t:        Yes         Yes         No          Yes         Yes         Quarterly
                                                                      briefings
Federal
Home
Loan
Mortgage
Corporat
ion


Federal
National
Mortgage
Associat
ion

Risk
Manageme
nt        Yes         No          Yes         No          Under       No
Agency:                                                   considerat
                                                          ion
Federal
Crop
Insuranc
e

Securiti
es and
Exchange
Commissi  No          No          No          No          Yes         Informal
on:                                                                   discussion
                                                                      s on
Securiti                                                              efforts
es
Investor
Protecti
on
Corporat
ion
--------------------------------------------------------------------------------
Sources:  Federal regulators listed above. 


--------------------
\24 GAO and the OMB developed a schedule for federal agencies to
follow in completing each of the five readiness phases by working
back from January 1, 2000.  See GAO/AIMD-10.1.14, page 6. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :8

To determine which financial services institutions are independent
corporations, sponsored in whole or in part by the federal
government, or corporations within the executive branch, we defined
financial services institutions as entities whose enabling
legislation authorized them to provide direct loans or credit,
guarantee loans or mortgage-backed securities; insurance (deposits,
pension funds, crops, etc.); or secondary market activities related
to loans (mortgages, student loans, etc).  We then used prior GAO
reports, the President's 1998 Budget Appendix, reference documents,
and studies/articles identified during our literature/Internet search
to develop a list of institutions.  This list was then shared with
the Congressional Research Service, Congressional Budget Office,
Department of the Treasury, and Office of Management and Budget and
refined to reflect their comments. 

To identify the extent to which these institutions were subject to
selected oversight mechanisms and controls, we used prior GAO
reports, the President's Budget, and the institution's enabling
legislation to determine if the institution had a federal safety and
soundness regulator.  We did not determine for this report if the
regulators were effectively using these authorities to supervise the
financial services institutions.  However, we have addressed the
oversight activities of some regulators in other reports.\25

To determine if other internal and external oversight mechanisms and
controls existed that might serve to alert Congress to potential
problems, promote market discipline, or lead to correction of a
problem, we completed a Data Collection Instrument (DCI) for each
institution that focused on control mechanisms that could be used
regardless of the presence or absence of a safety and soundness
regulator.  Specifically, we focused on (1) adherence to selected
federal statutes (Government Corporation Control Act of 1945,
Government Performance and Results Act of 1993, Chief Financial
Officers Act of 1990, Federal Managers' Financial Integrity Act of
1982, and Federal Credit Reform Act of 1990); (2) independent OIG
personnel; (3) externally audited financial statements; and (4)
independent credit rating reports.  We sent the completed DCI to the
financial services institutions for validation and to obtain missing
data items. 

To provide information on the independence and authorities of any
safety and soundness regulators for these financial services
institutions, we used legal statutes, published regulations, and
prior GAO reports to complete a DCI for each identified regulator. 
The DCI focused on the regulator's standard-setting authorities;
enforcement powers; and ability to levy direct fees or assessments
(examination fees, user fees, general assessments, and other
mechanisms).  In addition, the regulator DCI obtained information on
the total costs incurred by the regulator for its examination and
oversight activities and the funding sources used to offset any costs
that were not charged to the institution.  The DCIs were sent to the
regulators for validation and to obtain missing data items. 

To address the objective of potential exposure, we first determined
whether or not the federal government had an explicit liability for
the activities of the financial services institution on our listing. 
We made this determination on the basis of an analysis of the
institution's enabling legislation and prior GAO reports.  We
obtained information on the extent of potential exposure for each
financial services institution using the most recent available
audited financial statements and/or the President's Budget. 
Specifically, we obtained information on the institutions' total
assets and liabilities and their commitments and contingencies. 
These data were recorded in a DCI that was subsequently sent to each
institution for validation and to obtain missing data items. 

To provide information on the state of readiness of these
institutions to achieve Year 2000 compliance and the regulators'
efforts in this area, we used both the institution and regulator
DCIs.  The institution DCI was keyed to the five broad phases of
readiness that we developed and used in previous Year 2000 compliance
assessments.  The regulator DCI focused on efforts taken by the
regulator to ensure the institution's readiness, including issuance
of guidance, examination of progress, coverage by external or
internal auditors, and submission of reports.  For this particular
objective, we relied almost entirely on the institutions and
regulators to provide the needed data.  The information on FDIC's
Year 2000 readiness was based on our prior work on this subject,
which was validated by FDIC.\26

We did our work between November 1997 and April 1998 in accordance
with generally accepted government auditing standards. 


--------------------
\25 For example, see Federal Housing Enterprises:  OFHEO Faces
Challenges In Implementing a Comprehensive Oversight Program,
(GAO/GGD-98-6, Oct.  22, 1997); Farm Credit System:  Farm Credit
Administration Effectively Addresses Identified Problems,
(GAO/GGD-94-14, Jan.  7, 1994); and Government Sponsored Enterprises: 
Advantages and Disadvantages of Creating a Single Housing GSE
Regulator (GAO/GGD-97-139, July 9, 1997). 

\26 GAO/T-AIMD-98-73, Feb.  10, 1998. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :9

We requested comments on a draft of this report from the Secretary of
the Department of the Treasury and the Director of the Office of
Management and Budget (OMB) or their designees.  On May 5, 1998, we
met with the Department of the Treasury's Director of the Office of
Government-Sponsored Enterprise Policy who said that Treasury would
not be providing written comments on the draft.  However, he provided
technical comments, which we incorporated where appropriate. 

We received written comments from OMB, which are reprinted in
appendix VI.  OMB had two primary concerns with the scope of this
report.  Its first concern was with the exclusion of numerous
government entities that engage in financial services activities that
result in potential liabilities.  OMB stated that the report did not
address government agencies and departments, such as the Small
Business Administration, that directly engage in credit and insurance
activities similar to those undertaken by the financial services
institutions covered in the report.  We agree that the U.S.  Treasury
has a potential liability from financial services institutions within
the federal government regardless of whether the credit or insurance
program is conducted under a corporate entity or directly by an
executive branch department.  However, we feel that it is useful for
this report to focus on financial services institutions that are
independent corporations, sponsored in whole or in part by the
federal government, or corporations within the executive branch
because the oversight, issues, and concerns can be affected by an
institution's status as a corporation.  We revised and added
information early in this report to recognize that some of the
financial institutions are in fact parts of executive branch
departments and agencies or constitute entire agencies themselves. 

Second, OMB expressed concern that in presenting data on potential
liability we did not ultimately identify which were the most
appropriate indicators of the potential liabilities of these
financial services institutions.  We agree.  Due to the wide range of
financial activities undertaken by the institutions and the unique
nature of the associated potential liabilities, identifying a set of
indicators that would be most appropriate for measuring the
government's exposure for all 22 of the institutions would require
analyses beyond the agreed-upon scope of this report.  For example,
the unique purposes of each institution and various economic and
other circumstances that might affect its condition would have to be
considered.  However, we believe that the information contained in
this report can be useful for Congress and the executive branch in
identifying specific institutions for more focused and in-depth
analysis.  OMB also provided technical comments, which we
incorporated where appropriate. 


---------------------------------------------------------- Letter :9.1

As agreed with your office, unless you announce the contents of this
report earlier, we plan no further distribution until 30 days after
the date of this report.  At that time, we will send copies of the
report to the Ranking Minority Member of your Subcommittee; the
Chairmen and Ranking Minority Members of the Subcommittee on
Financial Institutions and Consumer Credit and the Subcommittee on
Capital Markets, Securities and Government Sponsored Enterprises,
House Banking Committee; the financial services institutions and
federal regulators covered in this report, the Department of the
Treasury, and the Office of Management and Budget.  We will also make
copies available to others on request. 

This report was prepared under the direction of M.  Kay Harris,
Assistant Director, Financial Institutions and Markets Issues.  Other
major contributors are listed in appendix VII.  Please contact me or
Ms.  Harris on (202) 512-8678 if you have any questions on this
report. 

Sincerely yours,

Thomas J.  McCool
Director, Financial Institutions
 and Markets Issues


FINANCIAL SERVICES INSTITUTIONS
PURPOSE AND FUNDING SOURCES
=========================================================== Appendix I

Institution name                Purpose             Funding sources
------------------------------  ------------------  ------------------
Government corporations
----------------------------------------------------------------------
Alternative Agricultural        Foster development  Receives annual
Research and Commercialization  and                 appropriations
Corporation                     commercialization   from Congress and
                                of new nonfood,     operates under a
                                nonfeed products    revolving fund
                                derived from        from which
                                agricultural and    repayments are
                                forestry materials  used to fund other
                                and animal          projects.
                                byproducts.

Commodity Credit Corporation    Stabilize,          Corporation has
                                support, and        capital stock of
                                protect farm        $100 million held
                                income and prices;  by the U.S.
                                assist in           Treasury and has
                                maintaining         authority to
                                balanced and        borrow up to $30
                                adequate suppliers  billion
                                of agricultural     collectively from
                                commodities and     the U.S. Treasury,
                                their products;     private lending
                                and facilitate the  agencies, and
                                orderly             other sources. The
                                distribution of     corporation
                                commodities. It     receives annual
                                also carries out    appropriations for
                                assigned foreign    its past losses.
                                assistance          In addition, the
                                activities, such    corporation
                                as guaranteeing     receives
                                the credit sale of  appropriations for
                                U.S. agricultural   the subsidy
                                products abroad.    portion of its
                                                    export credit
                                                    activities as
                                                    required by the
                                                    Federal Credit
                                                    Reform Act.

Community Development           Provide financial   Funding is
Financial Institutions Fund     assistance through  provided through
                                equity              congressional
                                investments,        appropriations.
                                deposits, grants,   Funds could be
                                loans, and          generated from
                                technical           returns on equity
                                assistance to new   investments in
                                and existing        community
                                community           development
                                development         financial
                                financial           institutions.
                                institutions, such
                                as community
                                development banks,
                                credit unions,
                                loan funds,
                                venture capital
                                funds, and micro-
                                loan funds. Its
                                aim is to expand
                                the availability
                                of credit,
                                investment
                                capital,
                                financial, and
                                other services in
                                distressed urban,
                                rural, and Native
                                American
                                communities.

Export-Import Bank of the       Aid in the          Has capital stock
United States                   financing and       of $1 billion
                                promotion of U.S.   purchased by the
                                exports by          U.S. Treasury; the
                                providing export    bank receives
                                credit support      annual
                                through direct      appropriations and
                                loan, loan          can issue up to $6
                                guarantee, and      billion in debt
                                insurance           obligations for
                                programs.           purchase by the
                                                    U.S. Treasury.

Federal Crop Insurance          Improve the         Crop insurance
Corporation                     economic stability  program is
                                of U.S.             financed primarily
                                agriculture         through general
                                through a sound     fund
                                system of crop      appropriations and
                                insurance and       farmer-paid
                                provide the means   premiums. It is
                                for the research    authorized to use
                                and experience      funds from the
                                helpful in          issuance of
                                devising and        capital stock,
                                establishing such   subscribed to by
                                insurance. Offers   the United States
                                catastrophic crop   for working
                                insurance to cover  capital purposes.
                                unavoidable losses
                                due to factors,
                                such as insect
                                infestation,
                                adverse weather
                                conditions, fires,
                                and earthquakes.
                                It also offers
                                additional
                                coverage to
                                supplement the
                                minimal level of
                                protection
                                provided under the
                                catastrophic
                                program.

Federal Deposit Insurance       Promote stability   Primarily funded
Corporation                     of and public       from (1) interest
                                confidence in the   earned on
                                nation's banking    investments in
                                system by           U.S. Treasury
                                providing deposit   obligations, (2)
                                insurance to banks  bank and thrift
                                and thrifts and     assessment
                                supervise and       premiums, and (3)
                                examine state-      income earned on
                                chartered banks     and funds received
                                that are not        from the
                                members of the      management and
                                Federal Reserve     disposition of
                                System.             assets acquired
                                                    from failed banks
                                                    and thrifts. FDIC
                                                    also has authority
                                                    to borrow up to
                                                    $30 billion
                                                    outstanding at any
                                                    one time from the
                                                    U.S. Treasury and
                                                    limited amounts
                                                    from the Federal
                                                    Financing Bank.

Federal Housing Administration  Provide mortgage    Receives
                                insurance to        appropriations and
                                borrowers that the  generates
                                conventional        additional income
                                market does not     from investments
                                adequately          in U.S. government
                                service: first      securities funded
                                time home buyers,   by insurance
                                minorities, lower   premiums.
                                income families,
                                and residents of
                                underserved areas.
                                It underwrites
                                single-family,
                                multifamily,
                                property
                                improvement, and
                                manufacturing home
                                loans.

Government National Mortgage    Support the         Uses assessments
Association                     government's        of commitment,
                                housing objectives  guarantee, and
                                by establishing     other fees of
                                secondary market    Government
                                facilities for      National Mortgage
                                residential         Association
                                mortgages,          mortgage-backed
                                guaranteeing        securities issuers
                                mortgage-backed     to cover costs and
                                securities          to fund a reserve
                                composed of         against possible
                                Federal Housing     future payments
                                Administration-     under the
                                insured or          guarantee.
                                Veterans Affairs-
                                guaranteed
                                mortgage loans
                                that are issued by
                                private lenders .

National Credit Union           Charter new         The deposit
Administration                  federal credit      insurance fund is
                                unions, supervise   funded by premiums
                                established         paid by member
                                federal credit      credit unions, a
                                unions, make        1-percent deposit
                                periodic            from insured
                                examinations of     credit unions, and
                                the credit unions'  income generated
                                financial           by their
                                condition and       investment. The
                                operating           Central Liquidity
                                practices, and      Facility is funded
                                provide             primarily by stock
                                administrative      subscriptions from
                                services. In        credit unions and
                                addition, it        borrowings (up to
                                administers (1) a   $600 million) from
                                fund that insures   the Federal
                                member share        Financing Bank.
                                deposits in all     NCUA also has the
                                federal credit      authority to
                                unions and in       borrow up to $100
                                qualifying state    million from the
                                credit unions that  U.S. Treasury for
                                request insurance,  the deposit
                                (2) a Central       insurance fund.
                                Liquidity Facility
                                fund that provides
                                seasonal and
                                emergency loans to
                                member federal and
                                state credit
                                unions, and (3) a
                                revolving loan
                                program that is
                                intended to
                                stimulate
                                community
                                development.

Overseas Private Investment     Promote economic    Income is derived
Corporation                     growth in           primarily from (1)
                                developing          interest earnings
                                countries by        on invested
                                encouraging U.S.    assets, (2)
                                private investment  premiums, (3)
                                in those            recoveries, and
                                countries. It       (4) fees. In
                                encourages U.S.     addition, it has
                                investors by        the authority to
                                financing           borrow up to $100
                                businesses through  million from the
                                loans and loan      U.S. Treasury. It
                                guarantees,         also receives
                                supporting private  annual
                                investment funds    appropriations for
                                that provide        the subsidy
                                equity for U.S.     portion of its
                                companies           credit activities.
                                investing in
                                overseas projects,
                                insuring
                                investments
                                against a broad
                                range of political
                                risks, and
                                engaging in
                                outreach
                                activities.

Pension Benefit Guaranty        Protect the         Receives funds
Corporation                     retirement income   from premiums
                                of participants     collected from
                                and beneficiaries   ongoing pension
                                covered by private  plans, investment
                                sector defined-     income, terminated
                                benefit pension     plan assets, and
                                plans if single-    recoveries from
                                employer plans      sponsors of
                                terminate or if     terminated plans.
                                multiemployer       In addition, it
                                plans are unable    has the authority
                                to pay benefits.    to borrow up to
                                                    $100 million from
                                                    the U.S. Treasury.

Rural Telephone Bank            Provide a           Equity capital
                                supplemental        consisting of
                                source of           class A stock
                                financing for       purchased by the
                                telecommunications  United States and
                                borrowers under     classes B and C
                                the Rural           stock purchased by
                                Utilities           bank borrowers,
                                Service's           organizations
                                telecommunications  eligible to become
                                loan program. The   borrowers, and
                                Rural Telephone     organizations
                                Bank assists rural  controlled by
                                electric and        borrowers. In
                                telecommunications  addition, income
                                organizations in    is generated from
                                obtaining           interest charged
                                financing to        on its loans. The
                                provide services    Rural Telephone
                                in rural areas.     Bank also receives
                                The Bank lends to   annual
                                rural               appropriations for
                                telecommunications  the subsidy
                                organizations.      portion of its
                                                    credit activities.


Government-sponsored enterprises
----------------------------------------------------------------------
Farm Credit System              Provide privately   Proceeds from sale
                                financed credit to  of systemwide debt
                                agricultural and    securities and
                                rural communities.  assessments of
                                Its services        system
                                include long-term   institutions. In
                                real estate loans,  addition to
                                short-and           revenues from its
                                intermediate-term   lending
                                loans to            activities, system
                                agricultural        banks and
                                producers, credit   associations
                                and mortgage life   receive investment
                                or disability       income from
                                insurance, various  investments held
                                types of crop       for the purposes
                                insurance, estate   of maintaining a
                                planning,           liquidity reserve,
                                recordkeeping       managing surplus
                                services, tax       funds, and
                                planning and        managing interest
                                preparation, and    rate risk.
                                consulting.

Federal Agricultural Mortgage   Foster the          Derives financial
Corporation                     development of a    support and
                                secondary market    funding from sale
                                for mortgage loans  of common and
                                secured by first    preferred stock,
                                liens on            issuance of debt
                                agricultural real   obligations, gain
                                estate or rural     on sale of
                                housing by          guaranteed loan-
                                guaranteeing the    backed securities,
                                timely payment of   guarantee fees,
                                principal and       and income from
                                interest on         investments. The
                                securities          Secretary of the
                                representing        U.S. Treasury is
                                interest in, or     authorized to
                                obligations backed  purchase
                                by, such loans. It  obligations of
                                also guarantees     this entity in
                                the timely payment  cumulative amounts
                                of principal and    not to exceed $1.5
                                interest on         billion for the
                                securities backed   purpose of
                                by portions of      fulfilling the
                                farm ownership and  entity's guarantee
                                farm operating      obligations.
                                loans, rural
                                business and
                                community
                                development loans,
                                and certain other
                                loans guaranteed
                                by the Department
                                of Agriculture.

Federal Home Loan Banks         Help provide        Derives funding
                                access to housing   from the sale of
                                by making loans,    consolidated
                                called advances,    obligations to the
                                and providing       public; other
                                other credit        sources of
                                products and        lendable funds
                                services to over    include members'
                                6,400 member        deposits and
                                commercial banks,   capital. The
                                savings             Secretary of the
                                associations,       U.S. Treasury is
                                insurance           authorized, at the
                                companies, and      Secretary's
                                credit unions. The  discretion, to
                                Federal Home Loan   purchase up to $4
                                Bank System         billion in the
                                consists of 12      Federal Home Loan
                                Federal Home Loan   Bank System's
                                Banks and the       obligations.
                                Office of Finance.

Federal Home Loan Mortgage      Provide stability   Sale of capital
Corporation                     in the secondary    stock and
                                market for          mortgage-backed
                                residential         securities, the
                                mortgages, provide  issuance of debt
                                ongoing assistance  obligations,
                                to the secondary    interest, and fee
                                market for          income. The
                                residential         Secretary of the
                                mortgages, and      U.S. Treasury is
                                promote access to   authorized to
                                mortgage credit     purchase, at the
                                throughout the      Secretary's
                                nation by           discretion, up to
                                increasing the      $2.25 billion of
                                liquidity of        the Federal Home
                                mortgage            Loan Mortgage
                                investments and     Corporation's
                                improving the       obligations.
                                distribution of
                                investment capital
                                for residential
                                mortgage
                                financing.

Federal National Mortgage       Provide stability   Sale of capital
Association                     in the secondary    stock and
                                market for          mortgage-backed
                                residential         securities, the
                                mortgages, provide  issuance of debt
                                ongoing assistance  obligations,
                                to the secondary    interest, and fee
                                market for          income. The
                                residential         Secretary of the
                                mortgages, and      U.S. Treasury is
                                promote access to   authorized, at the
                                mortgage credit     Secretary's
                                throughout the      discretion, to buy
                                nation by           up to $2.25
                                increasing the      billion of the
                                liquidity of        Federal National
                                mortgage            Mortgage
                                investments and     Association's
                                improving the       obligations.
                                distribution of
                                investment capital
                                for residential
                                mortgage
                                financing.

Student Loan Marketing          Expand funds        Issuance of debt
Association                     available for       securities to the
                                student loans by    public and
                                promoting           domestic and
                                liquidity in the    overseas capital
                                student loan        markets is the
                                marketplace         primary means of
                                through secondary   financing. Other
                                market purchases.   sources of
                                Its products and    financing include
                                services include    the sale of common
                                student loan        and preferred
                                purchases,          stock, the
                                commitments to      securitization of
                                purchase student    its student loans,
                                loans, and secured  and interest
                                advances to         income. The
                                originators of      Secretary of the
                                student loans. It   U.S. Treasury is
                                also offers         authorized to
                                operational         purchase up to $1
                                support to          billion in the
                                originators of      Student Loan
                                student loans and   Marketing
                                to postsecondary    Association's
                                education           obligations.
                                institutions.
                                Pursuant to
                                authority enacted
                                in the Student
                                Loan Marketing
                                Association Act of
                                1996, the
                                Association's
                                shareholders
                                approved a plan on
                                July 31, 1997, to
                                reorganize as a
                                fully private,
                                state-chartered
                                entity. Under the
                                reorganization,
                                which became
                                effective on
                                August 8, 1997,
                                the Association
                                became a wholly
                                owned subsidiary
                                of SLM Holding
                                Corporation.


Other institutions
----------------------------------------------------------------------
Farm Credit System Insurance    Ensure the timely   Collects insurance
Corporation                     payment of          premiums from Farm
                                principal and       Credit System
                                interest on Farm    member banks to
                                Credit System debt  pay administrative
                                obligations         expenses and fund
                                purchased by        insurance
                                investors.          reserves.

National Consumer Cooperative   Support eligible    Primary source of
Bank                            cooperatives with   funding is from
                                credit and          private lenders.
                                technical           Its major
                                assistance and      creditors are
                                encourage broad-    banks and
                                based ownership,    insurance
                                control, and        companies. Initial
                                participation in    funding was
                                the Bank. In        provided through
                                general,            Treasury purchases
                                cooperatives        of its class A
                                eligible for Bank   stock. The
                                loans and services  Treasury-held
                                are organizations   stock was
                                operating on a      subsequently
                                cooperative, not-   exchanged for
                                for-profit basis    class A notes that
                                to produce or       must be repaid by
                                furnish goods,      October 31, 2020.
                                services, or
                                facilities
                                primarily for the
                                benefit of their
                                member-
                                stockholders who
                                are the ultimate
                                consumers.

Neighborhood Reinvestment       Conduct programs    Federal
Corporation                     to stimulate the    appropriations and
                                development of      nonfederal
                                local public/       funding, such as
                                private resident    contributions from
                                partnerships        local government
                                committed to        agencies and
                                reversing           private
                                neighborhood        foundations, and
                                decline. It works   other revenue
                                with financial      sources.
                                institutions and
                                local governments
                                to stimulate
                                reinvestment in
                                locally selected
                                neighborhoods by
                                offering
                                rehabilitation and
                                financial services
                                to community
                                residents.

Securities Investor Protection  Afford certain      Assessments
Corporation                     protections for     collected from its
                                customers who       members and
                                experience loss as  interest earned
                                a result of         from investments
                                broker-dealer       in U.S. government
                                failure and         securities. It is
                                promote investor    authorized to
                                confidence in the   maintain confirmed
                                nation's            lines of credit
                                securities          with banks and
                                markets. Members    other financial
                                of the Corporation  institutions.
                                are generally       Additionally, the
                                registered broker-  Securities and
                                dealers and all     Exchange
                                persons who are     Commission is
                                members of a        authorized to make
                                national            up to $1 billion
                                securities          in loans to the
                                exchange.           corporation in the
                                                    event that its
                                                    funds appear to be
                                                    insufficient for
                                                    its intended
                                                    purposes.











Not included in full survey
----------------------------------------------------------------------
African Development Foundation  Authorized to       Congressional
                                makes grants,       appropriations.
                                loans, and loan
                                guarantees to any
                                African private
                                group,
                                association, or
                                other entity
                                engaged in
                                peaceful
                                activities that
                                enable the people
                                of Africa to
                                develop more
                                fully. The
                                Foundation also
                                develops strategic
                                partnerships,
                                funds development
                                research and
                                dissemination, and
                                provides technical
                                assistance.

National Sheep Industry         Promote activities  Has funding
Improvement Center              to strengthen and   through
                                enhance production  appropriations
                                or marketing of     placed in a
                                sheep and goats     revolving fund.
                                and their products
                                in the United
                                States. It may
                                provide loans or
                                grants to eligible
                                entities to
                                provide assistance
                                to the industry
                                for infrastructure
                                development,
                                business
                                development,
                                production and
                                resource
                                development, and
                                market and
                                environmental
                                research.

Presidio Trust                  Maintain and lease  Congressional
                                property in the     appropriations;
                                Presidio of San     also authorized to
                                Francisco           borrow up to $50
                                consistent with     million from the
                                the surrounding     U.S. Treasury, but
                                National Park       only if the
                                Service lands.      Secretary agrees
                                                    to purchase such
                                                    obligations, to
                                                    rehabilitate and
                                                    prepare facilities
                                                    for leasing.
----------------------------------------------------------------------
Source:  Financial services institutions listed above, their annual
reports, financial statements, and other published sources. 


SELECTED OVERSIGHT MECHANISMS AND
CONTROLS BY FINANCIAL SERVICES
INSTITUTION
========================================================== Appendix II

                          External      OIG           Credit        Internal
Institution name          audit         authority     rating        audit
------------------------  ------------  ------------  ------------  ------------
Government corporations
--------------------------------------------------------------------------------
Alternative Agricultural  Yes           Yes           No            No
Research and
Commercialization
Corporation

Commodity Credit          Yes           Yes           No            No
Corporation

Community Development     Yes           Yes           No            No
Financial Institutions
Fund

Export-Import Bank of     Yes           No            No            No
the United States

Federal Crop Insurance    Yes           Yes           No            No
Corporation

Federal Deposit           Yes           Yes           No            Yes\
Insurance Corporation

Federal Housing           Yes           Yes           No            No
Administration\a

Government National       Yes           Yes           No            No
Mortgage Association

National Credit Union     Yes           Yes           No            No
Administration

Overseas Private          Yes           Yes           No            No
Investment Corporation

Pension Benefit Guaranty  Yes           Yes           No            No
Corporation\a

Rural Telephone Bank      Yes           Yes           No            No


Government-sponsored enterprises
--------------------------------------------------------------------------------
Farm Credit System        Yes           No            Yes           Yes\b

Federal Agricultural      Yes           Yes           No            No
Mortgage Corporation

Federal Home Loan Banks   Yes           No            Yes           Yes

Federal Home Loan         Yes           No            Yes           Yes
Mortgage Corporation

Federal National          Yes           No            Yes           Yes
Mortgage Association

Student Loan Marketing    Yes           No            Yes           Yes
Association


Other institutions
--------------------------------------------------------------------------------
Farm Credit System        Yes           Yes           No            No
Insurance Corporation

National Consumer         Yes           No            Yes           Yes
Cooperative Bank

Neighborhood              Yes           No            Yes           Yes
Reinvestment Corporation

Securities Investor       Yes           No            No            No
Protection Corporation
--------------------------------------------------------------------------------
\a Institution required to have annual reports generated on its
actuarial soundness. 

\b All of the Farm Credit System banks, which hold the majority of
the system's assets, have an internal audit function.  The status of
an internal audit function in the other system components was not
readily available. 

Source:  Financial services institutions listed above. 


SELF-REPORTED ADHERENCE TO
SELECTED FEDERAL STATUTES THAT
PROMOTE ACCOUNTABILITY AND CONTROL
========================================================= Appendix III

As agreed with your office, we obtained information on coverage by or
voluntary adherence to five selected federal statutes that promote
accountability and control for those institutions without a federal
regulator (see table III).  The Government Corporation Control Act of
1945 (GCCA) mandates audit, accounting, and budget requirements for
mixed-ownership and wholly owned government corporations.  The
Government Performance and Results Act of 1993 (GPRA) was intended to
improve the efficiency and effectiveness of federal programs by
establishing a system to set goals for program performance and to
measure results.  Specifically, GPRA requires the preparation of
multiyear strategic plans, annual performance plans, and annual
performance reports. 

The Chief Financial Officers Act of 1990 (CFO Act), as subsequently
expanded through the Government Management Reform Act of 1994,
requires the preparation and audit of annual financial statements. 
Additionally, the CFO Act set expectations for (1) the deployment of
modern systems to replace existing antiquated, often manual
processes; (2) the development of better performance and cost
measures; and (3) the design of results-oriented reports on the
government's financial condition and operating performance by
integrating budget, accounting, and program information. 

The Federal Managers' Financial Integrity Act of 1982 (FMFIA)
requires that heads of executive agencies evaluate and report on
their internal control and accounting systems.  The Federal Credit
Reform Act of 1990 (FCR Act) requires that the full estimated cost to
the government (on a net present value basis) over the life of a loan
or loan guarantee be reflected in the budget before the credit is
extended.  Federal accounting standards were subsequently developed
that are consistent with the intent of this act. 

The majority of government corporations reported that they fully or
partially adhered to these five statutes.  All of the government
corporations said that they fully or partially adhered to GCCA and
GPRA.  All but one of the government corporations reported full or
partial adherence to the CFO Act and FMFIA.  The two government
corporations that provided deposit insurance reported that they were
exempt from the requirements of the FCR Act.  As agreed with your
office, we did not independently determine the applicability of these
statutes to the institutions. 



                                    Table III
                     
                       Self-Reported Adherence to Selected
                                 Federal Statutes

Institutio
n name      GCCA          GPRA          CFO Act       FMFIA         FCR Act
----------  ------------  ------------  ------------  ------------  ------------
Government corporations
--------------------------------------------------------------------------------
Alternativ  Yes           Yes           Yes           Yes           Yes
e
Agricultur
al
Research
and
Commercial
ization
Corporatio
n

Commodity   Yes           Yes           Partial\a     Partial\a     Partial\a
Credit
Corporatio
n

Community   Partial       Yes           Yes           Yes           Yes
Developmen
t
Financial
Institutio
ns Fund

Export-     Yes           Yes           Yes           Yes\b         Yes
Import
Bank of
the United
States

Federal     Yes           Yes           Yes           Yes           Yes
Crop
Insurance
Corporatio
n

Federal     Yes           Yes\c         Yes\b         Yes\b         No
Deposit
Insurance
Corporatio
n

Federal     Yes           Yes           Yes           Yes           Yes
Housing
Administra
tion

Government  Yes           Yes           Yes           Yes           Yes
National
Mortgage
Associatio
n

National    Yes           Yes           Yes           Partial\a,b   No
Credit
Union
Administra
tion

Overseas    Yes           Yes           No            Partial\a,b   Partial\a,b
Private
Investment
Corporatio
n

Pension     Yes           Yes           Partial\a     Yes\b         Yes\b
Benefit
Guaranty
Corporatio
n

Rural       Yes           Yes           Yes           Yes           Yes
Telephone
Bank


Government-sponsored enterprises
--------------------------------------------------------------------------------
Farm        No            No            No            No            No
Credit
System

Federal     No            No            No            No            No
Agricultur
al
Mortgage
Corporatio
n

Federal     Yes           No            No            Yes           No
Home Loan
Banks

Federal     No            No            No            No            No
Home Loan
Mortgage
Corporatio
n

Federal     No            No            No            No            No
National
Mortgage
Associatio
n

Student     No            No            No            No            No
Loan
Marketing
Associatio
n


Other institutions
--------------------------------------------------------------------------------
Farm        No            Yes           Partial\a,b   Partial\a,b   Yes
Credit
System
Insurance
Corporatio
n

National    No            No            No            No            No
Consumer
Cooperativ
e Bank

Neighborho  Yes           Yes\b         Yes\b         Yes\b         No
od
Reinvestme
nt
Corporatio
n

Securities  No            No            No            No            No
Investor
Protection
Corporatio
n
--------------------------------------------------------------------------------
\a The term partial was used to describe institutions that indicated
they were covered by or voluntarily adhered to only selected
requirements of a federal statute. 

\b Institution indicated that it voluntarily adhered to the statute. 

\c Under GPRA, FDIC is required to submit a strategic plan for
program activities to OMB, but certain provisions of the act apply to
procedures that do not apply to FDIC. 

Source:  Financial services institutions listed above. 


FINANCIAL SERVICES INSTITUTION
REGULATORS' ENFORCEMENT AUTHORITY
========================================================== Appendix IV

As agreed with your office, we obtained information on the
enforcement authorities of the regulators covered in this report (see
table IV).  Our work with banks and thrifts shows that to be
effective, the regulator needs to be able to take prompt enforcement
actions when safety and soundness problems are identified. 
Enforcement actions available to bank and thrift regulators include
informal actions, such as requiring plans to rectify identified
problems; and range to more serious or formal actions, such as those
identified in table IV.  Some of the regulators reported having
formal enforcement authorities in addition to those captured in table
IV.  For example, the Department of the Treasury and the Securities
and Exchange Commission had the authority to bring action in district
court for enforcement purposes against the Student Loan Marketing
Association and Securities Investor Protection Corporation,
respectively.  In addition, the Department of the Treasury had
various capital-based enforcement authorities, such as requiring the
Student Loan Marketing Association to obtain additional capital or
requiring the submission of a capital restoration plan.  The Farm
Credit Administration had similar capital-based enforcement
authorities over the Farm Credit System and Federal Agricultural
Mortgage Corporation. 



                                     Table IV
                     
                       Selected Enforcement Authorities of
                         Financial Services Institutions'
                                    Regulators

Regulato                      Suspension
r                             ,                                      Termination
(regulat            Cease     prohibitio                             of
ed        Written   and       n, or       Civil                      participati
institut  agreemen  desist    removal     money       Conservatorsh  on or
ion)      t         order     action      penalty     ip             coverage
--------  --------  --------  ----------  ----------  -------------  -----------
Departme
nt of
the
Treasury  No        No        No          No          No             No
:

Student
Loan
Marketin
g
Associat
ion

Farm
Credit
Administ
ration:   Yes       Yes       Yes         Yes         Yes            No

Farm      No        Yes       Yes         Yes         Yes            No
Credit
System

Federal
Agricult
ural

Mortgage
Corporat
ion

National  No        No        No          No          No             No
Consumer
Cooperat
ive Bank

Federal
Housing
Finance
Board:    Yes       No        Yes         No          Yes            No

Federal
Home
Loan
Banks

Office
of
Federal
Housing
Enterpri  Yes       Yes       No          Yes         Yes            No
se
Oversigh
t:
          Yes       Yes       No          Yes         Yes            No
Federal
Home
Loan

Mortgage
Corporat
ion

Federal
National

Mortgage
Corporat
ion

Risk
Manageme
nt
Agency:   No        No        No          No          No             No

Federal
Crop
Insuranc
e
Corporat
ion

Securiti
es and
Exchange
Commissi
on:       No        No        No          No          No             No

Securiti
es
Investor
Protecti
on
Corporat
ion
--------------------------------------------------------------------------------
Source:  Federal regulators listed in the table above. 


ADDITIONAL FINANCIAL INFORMATION
FOR INSTITUTIONS
=========================================================== Appendix V

                              (Dollars in millions)

                    Net income                      Total       Items included
                     (loss) in       Treasury   commitments/    in total
Institution        fiscal year      borrowing   contingencies   commitments/
name                      1996    authority\a     (FY 1996)     contingencies
---------------  -------------  -------------  ---------------  ----------------
Government corporations
--------------------------------------------------------------------------------
Alternative              N/A\b           none       N/A\b       N/A\b
 Agricultural
 Research and
 Commercializat
 ion
 Corporation
Commodity             ($3,675)        $30,000      $36,954      Production
 Credit                                                          flexibility
 Corporation                                                     contracts,
                                                                 letters of
                                                                 commitment,
                                                                 purchasing
                                                                 commitments,
                                                                 export credit
                                                                 guarantees,
                                                                 ground waste
                                                                 contamination,
                                                                 market access
                                                                 program
Community                    0           none        39         Capital leases,
 Development                                                     grants
 Financial
 Institutions
 Fund
Export-Import            1,241          6,000      55,809       Off-balance
 Bank of the                                                     sheet financial
 United States                                                   instruments,
                                                                 outstanding
                                                                 loans
                                                                 receivable,
                                                                 outstanding
                                                                 subrogated
                                                                 claims
Federal Crop           (1,621)           none      26,800       Insurance-in-
 Insurance                                                       force
 Corporation
Federal Deposit          9,307       30,000\c     2,691,951     Capital leases,
 Insurance                                                       letters of
 Corporation                                                     credit, pledged
                                                                 securities,
                                                                 receivables
                                                                 from bank/
                                                                 thrift
                                                                 resolutions,
                                                                 insured
                                                                 deposits, asset
                                                                 securitization
                                                                 guarantees,
                                                                 anticipated
                                                                 failures of
                                                                 insured
                                                                 institutions,
                                                                 litigation
                                                                 losses
Federal Housing        (3,843)             82      434,833      Mortgage
 Administration                                                  insurance in
                                                                 force, section
                                                                 221(g)(4)
                                                                 program
                                                                 debentures
Government                 516           none      529,600      Total guaranteed
 National                                                        mortgage-
 Mortgage                                                        backed
 Association                                                     securities,
                                                                 commitments to
                                                                 guarantee
                                                                 mortgage-
                                                                 backed
                                                                 securities
National Credit            178          700\d      275,543      Capital leases,
 Union                                                           unsecured term
 Administration                                                  notes, insured
                                                                 deposits
Overseas                   209            100     37,622\e      Operating
 Private                                                         leases,
 Investment                                                      insurance
 Corporation                                                     coverage
                                                                 exposure,
                                                                 pending
                                                                 insurance
                                                                 claims,
                                                                 investment
                                                                 guarantees,
                                                                 outstanding,
                                                                 claims
                                                                 settlement
                                                                 guarantees
                                                                 undisbursed
                                                                 commitments on
                                                                 investment
                                                                 guarantees
Pension Benefit          1,116            100    1,093,151\f    Insured pension
 Guaranty                                                        plans,
 Corporation                                                     operating
                                                                 leases
Rural Telephone            880           none        880        Capital leases,
 Bank                                                            off-balance
                                                                 sheet financial
                                                                 instruments

Government-sponsored enterprises
--------------------------------------------------------------------------------
Farm Credit              1,055           none      41,958       Commitments to
 System                                                          extend credit,
                                                                 standby letters
                                                                 of credit,
                                                                 interest rate
                                                                 swaps, forwards
                                                                 and futures
                                                                 contracts,
                                                                 interest rate
                                                                 caps, floors,
                                                                 and other
                                                                 options
                                                                 contracts
Federal                      1          1,500        254        Capital leases,
 Agricultural                                                    loan purchase
 Mortgage                                                        commitments,
 Corporation                                                     outstanding
                                                                 principal
                                                                 balance of
                                                                 securities
                                                                 guaranteed and
                                                                 not held in
                                                                 portfolio,
                                                                 forward sales
                                                                 contracts
Federal Home             1,330          4,000      333,909      Commitments for
 Loan Banks                                                      additional
                                                                 advances,
                                                                 standby letters
                                                                 of credit,
                                                                 pledged
                                                                 collateral for
                                                                 interest rate
                                                                 exchange
                                                                 agreements,
                                                                 capital leases,
                                                                 required
                                                                 Resolution
                                                                 Funding
                                                                 Corporation
                                                                 annual payment
                                                                 commitment,
                                                                 Affordable
                                                                 Housing Program
                                                                 commitment,
                                                                 interest-rate
                                                                 exchange
                                                                 agreements
Federal Home             1,243          2,250      597,765      Outstanding
 Loan Mortgage                                                   commitments to
 Corporation                                                     purchase
                                                                 mortgages, off-
                                                                 balance sheet
                                                                 financial
                                                                 instruments
                                                                 (mortgage
                                                                 participation
                                                                 certificates,
                                                                 derivative
                                                                 financial
                                                                 instruments)
Federal                  2,725          2,250      782,000      Guaranteed
 National                                                        mortgage-
 Mortgage                                                        backed
 Association                                                     securities not
                                                                 held in
                                                                 portfolio
                                                                 (outstanding
                                                                 and
                                                                 commitments),
                                                                 off-balance
                                                                 sheet financial
                                                                 instruments
                                                                 (interest rate
                                                                 swaps, asset
                                                                 swaps, credit
                                                                 enhancements,
                                                                 options, and
                                                                 other
                                                                 guarantees)
Student Loan               419          1,000      60,237       Capital leases,
 Marketing                                                       commitments to
 Association                                                     purchase loans
                                                                 and lend funds,
                                                                 letters of
                                                                 credit
                                                                 guaranteeing
                                                                 repayment of
                                                                 state student
                                                                 loan revenue
                                                                 bonds, pending
                                                                 litigation,
                                                                 interest rate
                                                                 swaps, foreign
                                                                 currency
                                                                 agreements

Other institutions
--------------------------------------------------------------------------------
Farm Credit                137           none      62,092       Financial
 System                                                          Assistance
 Insurance                                                       Corporation
 Corporation                                                     bonds, insured
                                                                 Farm Credit
                                                                 System debt
                                                                 obligations
National                    11           none        107        Capital leases,
 Consumer                                                        standby letters
 Cooperative                                                     of credit
 Bank
Neighborhood             (/>1)           none        10         Capital leases,
 Reinvestment                                                    mortgage
 Corporation                                                     guarantees
Securities                  38          1,000         5         Capital leases,
 Investor                                                        line of credit
 Protection                                                      with bank
 Corporation                                                     consortium
--------------------------------------------------------------------------------
\a This column provides information on the authority of financial
services institutions to borrow funds from the U.S.  Treasury outside
of the borrowing authority granted by the Federal Credit Reform Act
to finance federal credit programs. 

\b Not applicable.  The Corporation did not begin operation as a
wholly owned government corporation until fiscal year 1997. 

\c FDIC has authority to borrow up to $30 billion for insurance
losses from the U.S.  Treasury, on behalf of the Savings Association
Insurance Fund and Bank Insurance Fund.  In addition, FDIC has
authority to borrow working capital from the Federal Financing Bank. 

\d The NCUA-administered Central Liquidity Fund's authorizing
legislation provided it with the authority to borrow up to 12 times
its subscribed capital stock (required plus on-call subscriptions). 
As of March 1998, that amount would have been approximately $17.8
billion.  However, Congress placed an appropriations limit of $600
million in 1981 on the amount that the fund could borrow for the
purpose of making new loans.  This appropriation limit has been
carried forward since 1981.  The National Credit Union Share
Insurance Fund is authorized to borrow $100 million from the Treasury
for unforeseen emergencies. 

\e The amount shown for the Overseas Private Investment Corporation
is based on a total face value of $31.4 billion for the three types
of political risk investment insurance coverages it offers. 
Investors may obtain all three coverages, but claim payments may not
exceed the single highest coverage.  Assuming that claims payments
would not exceed the single highest coverage, the Overseas Private
Investment Corporation estimated that its maximum exposure to
insurance claims was $13.4 billion.  The $13.4 billion is the amount
that is governed by the statutory limitation on its issuance of
insurance. 

\f Data on the face value of insurance exposure obtained from the
Office of Management and Budget.  The Pension Benefit Guaranty
Corporation reported that the total unfunded vested benefits on
single-employer plans that represent reasonably possible exposure
ranged from $22 billion to $26 billion.  In addition, it estimated
that it was reasonably possible that multiemployer plans may require
an additional $243 million in future financial assistance. 

Source:  Financial services institutions listed above. 




(See figure in printed edition.)Appendix VI
COMMENTS FROM THE OFFICE OF
MANAGEMENT AND BUDGET
=========================================================== Appendix V


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix VII


   GENERAL GOVERNMENT DIVISION,
   WASHINGTON, D.C. 
------------------------------------------------------- Appendix VII:1

Desiree W.  Whipple, Communications Analyst


   SAN FRANCISCO OFFICE
------------------------------------------------------- Appendix VII:2

Harry Medina, Evaluator-in-Charge
Sharon L.  Caudle, Senior Analyst

RELATED GAO PRODUCTS

Year 2000 Computing Crisis:  Federal Deposit Insurance Corporation's
Efforts to Ensure Bank Systems Are Year 2000 Compliant
(GAO/T-AIMD-98-73, Feb.  10, 1998). 

Year 2000 Computing Crisis:  Actions Needed to Address Credit Union
Systems' Year 2000 Problem (GAO/AIMD-98-48, Jan.  7, 1998). 

Budget Issues:  Budgeting for Federal Insurance Programs
(GAO/AIMD-97-16, Sept.  30, 1997). 

Year 2000 Computing Crisis:  An Assessment Guide (GAO/AIMD-10.1.14,
Sept.  1997). 

GSEs:  Recent Trends and Policy (GAO/T-OCE/GGD-97-76, July 16, 1997). 

Government-Sponsored Enterprises:  Advantages and Disadvantages of
Creating a Single Housing GSE Regulator (GAO/GGD-97-139, July 9,
1997). 

Housing Enterprises:  Potential Impacts of Severing Government
Sponsorship (GAO/GGD-96-120, May 13, 1996). 

Government Corporations:  Profiles of Existing Government
Corporations (GAO/GGD-96-14, Dec.  13, 1995). 

Government Corporations:  Profiles of Recent Proposals
(GAO/GGD-95-57FS, Mar.  30, 1995). 

Government-Sponsored Enterprises:  A Framework for Limiting the
Government's Exposure to Risks (GAO/GGD-91-90, May 22, 1991). 

Budget Issues:  Profiles of Government-Sponsored Enterprises
(GAO/AFMD-91-17, Feb.  1991). 

Government-Sponsored Enterprises:  The Government's Exposure to Risks
(GAO/GGD-90-97, Aug.  15, 1990). 

Federal Credit and Insurance:  Programs May Require Increased Federal
Assistance in the Future (GAO/AFMD-90-11, Nov.  16, 1989). 

*** End of document. ***