Bank bailout rivaling S&Ls; is predicted Head of GAO warns Congress that FDIC fund is dwindling


WASHINGTON -- The nation's senior auditor said yesterday that the banking industry might be headed for a large taxpayer bailout.

Some members of Congress and analysts of the nation's commercial and savings bank industry have made such warnings before.

But the prediction by the comptroller general, Charles A. Bowsher, is significant because he is widely considered the most credible impartial voice in government.

His early assessments of the problems of savings and loan institutions and later of the huge costs in that bailout have proved prophetic.

Mr. Bowsher, speaking to reporters after appearing before a congressional committee, did not suggest how large a bailout might be needed, but even the most pessimistic assessments have not seen the need for the kind of costly effort that is being made to salvage savings and loans.

The administration estimates that the savings bailout will cost taxpayers $130 billion, but Mr. Bowsher, who as comptroller general is head of the General Accounting Office, has said that the total could be as high as $500 billion over 40 years.

Bailing out the banking industry would involve replenishing the government insurance fund that protects deposits and is used to cover the cost of bank failures. The fund has been battered by the growing number of large bank failures and is now at its lowest level since it was created in 1934.

Mr. Bowsher's latest assessment, which follows increasinglgloomy predictions and dire numbers about the state of the banking industry and the insurance fund, did not come totally as a surprise because he had previously urged Congress to provide additional money for the fund.

"The odds are strong that the taxpayers are going to end up having to pay money to shore up the insurance fund," said Representative Charles E. Schumer, D-N.Y., a member of the House Banking Committee. "But most of Congress would prefer to avoid the issue because it is such a tough political issue. Most people just don't want to think about it.

"I think Bowsher has been on target because he doesn't have an ax to grind."

The Treasury Department said yesterday, as it has before, that no taxpayer bailout of the banking industry would be necessary if Congress adopted its plan to reorganize the industry and eliminate barriers to bank expansion into new businesses and across state lines.

Mr. Bowsher's prediction was prompted in part by a report issued yesterday by bank regulators that while 90 percent of the nation's savings and commercial banks posted profits for the first three months of this year, the total size of banks with troubled loans had increased significantly, to $418 billion, from $399.7 billion less than three months ago.

On Monday, L. William Seidman, chairman of the Federal Deposit Insurance Corp., once again raised his estimate of losses to the fund that protects bank deposits, to as much as $23.1 billion over the next 18 months, up from $14 billion.

Mr. Seidman said yesterday thatmost of the losses were more likely to occur in 1992, but he denied that regulators were postponing the closing of ailing banks because the bank insurance fund was so low.

The timing and political content of Mr. Bowsher's remarks are noteworthy. In April he called on Congress to impose cash assessments on the banking industry to shore up the insurance fund with $15 billion in cash.

Neither the bankers nor Congress have rallied to this call, and it hasalso been denounced by the Bush administration and by senior regulators.

By raising the specter of a taxpayer bailout of troubled banks, Mr. Bowsher was reminding Congress and the White House that he sounded similar warnings in the 1980s that taxpayers were going to end up with the multibillion-dollar cost of the savings and loan bailout.

The fund has been depleted by a growing number of large bank failures, the latest of which was the

Bank of New England, whose failure in January could ultimately cost the fund $2.5 billion.

Worried about the imminent insolvency of the bank insurance fund, the Bush administration earlier this year asked Congress to overhaul the banking system and permit regulators to borrow up to $70 billion to protect depositors and shut down bankrupt institutions.

The package threatens to become bogged down in Congress in the next few weeks, and President Bush met

yesterday with senior Democrats and Republicans from the House to push his legislation.

Treasury officials have said the prospective loans to the insurance fund will be repaid from industry contributions and from the sale of assets from the failed banks.

But Mr. Bowsher told reporters after appearing before the congressional committee that "it is far from certain" that the government would be repaid under the administration's proposal.

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