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
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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
CFOAChief 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. ***