United States General Accounting Office

GAO 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

GAO United States

General Accounting Office

Washington, D.C. 20548

General Government Division

B-278877 

June 15, 1998

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

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.

Page 1 GAO/GGD-98-125 Financial Services Institutions’ Exposure
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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

Background 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.

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).

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.

Page 2 GAO/GGD-98-125 Financial Services Institutions’ Exposure
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• 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.

5

For additional information on government corporations, see Government Corporations: Profiles of

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

Page 3 GAO/GGD-98-125 Financial Services Institutions’ Exposure
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Results in Brief 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

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.

Page 4 GAO/GGD-98-125 Financial Services Institutions’ Exposure
B-278877 

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.

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.

10One 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.

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

Page 5 GAO/GGD-98-125 Financial Services Institutions’ Exposure
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Characteristics of

Financial Services

Institutions

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.

12We 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.

13One 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.

Page 6 GAO/GGD-98-125 Financial Services Institutions’ Exposure
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Table 1: Financial Services Institutions

Institution name Financial services authorized

Government corporations

Alternative Agricultural Research and

Commercialization Corporation

direct loans, other (equity investments)

Commodity Credit Corporation direct loans, guaranteed loans

Community Development Financial

Institutions Fund

grants, direct loans, other (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 Administrationa 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 Corporation guaranteed mortgage-backed 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 Corporation insurance

aThe 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.

Page 7 GAO/GGD-98-125 Financial Services Institutions’ Exposure
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Oversight

Mechanisms and

Controls

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

14The 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.

15GPRA 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.

Page 8 GAO/GGD-98-125 Financial Services Institutions’ Exposure
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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

Institution name

Federal

regulator

External

audit

OIG

review

GPRA

adherence

CFO Act

adherence

Government corporations

Alternative Agricultural

Research and

Commercialization Corporation

No Yes Yes Yes Yes

Commodity Credit Corporation No Yes Yes Yes Partiala

Community Development

Financial Institutions Fund

No Yes Yes Yes Yes

Export-Import Bank of the

United States

No Yes No Yes Yes

Federal Crop Insurance

Corporation

Yes Yes Yes Yes Yes

Federal Deposit Insurance

Corporation

No Yes Yes Yesb Yesc

Federal Housing Administration No Yes Yes Yes Yes

Government National

Mortgage Association

No Yes Yes Yes Yes

National Credit Union

Administration

No Yes Yes Yes Yes

Overseas Private Investment

Corporation

No Yes Yes Yes Partiala,c

Pension Benefit Guaranty

Corporation

No Yes Yes Yes Partiala

Rural Telephone Bank No Yes Yes Yes Yes

Government-sponsored enterprises

Farm Credit System Yes Yes No No No

Federal Agricultural Mortgage

Corporation

Yes Yes No No No

(continued)

Page 9 GAO/GGD-98-125 Financial Services Institutions’ Exposure
B-278877 

Institution name

Federal

regulator

External

audit

OIG

review

GPRA

adherence

CFO Act

adherence

Federal Home Loan Banks Yes Yes No No No

Federal Home Loan Mortgage

Corporation

Yes Yes No No No

Federal National Mortgage

Association

Yes Yes No No No

Student Loan Marketing

Association

Yes Yes No No No

Other institutions

Farm Credit System Insurance

Corporation

No Yes No Yes Yesc

National Consumer

Cooperative Bank

Yes Yes No No No

Neighborhood Reinvestment

Corporation

No Yes No Yesc Yesc

Securities Investor Protection

Corporation

Yes Yes No No No

aThe term partial was used to describe institutions that indicated they were covered by or

voluntarily adhered to only selected requirements of a federal statute.

bFDIC 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.

cInstitution indicated that it voluntarily adhered to the statute.

Source: Financial services institutions listed above.

Regulatory

Independence,

Authority, and Fees

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

16Two 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.

Page 10 GAO/GGD-98-125 Financial Services Institutions’ Exposure
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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 199618 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

17See 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).

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

Page 11 GAO/GGD-98-125 Financial Services Institutions’ Exposure
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IV for additional detail regarding the enforcement authorities of the six

regulators.

Table 3: Regulatory and Supervisory Authority of the Six Financial Services Institutions’ Regulators

Regulator: regulated

financial services institution

Rules and

regulation

authority

Exam

authority

Minimum capital

standards

Enforcement

authority

Assessment

authority

Department of the Treasury

Student Loan Marketing

Association

No Yes Not applicableb Limitedc Yes

Farm Credit Administration

Farm Credit System Yes Yes Yes Yes Yes

Federal Agricultural

Mortgage Corporation

Yes Yes Yes Yes Yes

National Consumer

Cooperative Bank

No Yes No No Yes

Federal Housing Finance Board Yes Yes Yes Limitedc Yes

Federal Home Loan Banks

Office of Federal Housing Enterprise Oversight

Federal Home Loan

Mortgage Corporation

Yes Yes Yes Limitedc Yes

Federal National Mortgage

Association

Yes Yes Yes Limitedc Yes

Risk Management Agency

Federal Crop Insurance

Corporation

Yes Not applicablea No Not applicablea No

Securities and Exchange Commission

Securities Investor

Protection Corporation

Yes Yes Yes No No

Note: Italics used to identify government-sponsored enterprises.

aIn addition to its supervision and oversight responsibilities, the Risk Management Agency is

responsible for administering the Federal Crop Insurance Corporation’s programs.

bMinimum capital standards were established in legislation.

cRegulator 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

Page 12 GAO/GGD-98-125 Financial Services Institutions’ Exposure
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or partially on appropriated funds to pay for their oversight costs and

activities.

Page 13 GAO/GGD-98-125 Financial Services Institutions’ Exposure
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Table 4: Federal Regulators’ Assessments and Fee Authority

Regulator: regulated financial

services institution

Assessments

and/or fee

authority Basis (formula) used

Amount collected

(FY 1997)

Department of the Treasury

Student Loan Marketing Association Yes Assessments cover reasonable costs and

expenses not to exceed $800,000 as

adjusted by the Consumer Price Index.

$0.8 million

Farm Credit Administration

Farm Credit System Yes Assessments of banks, associations, and

Farm 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 are assessed for direct

expenses, an allocated portion of indirect

expenses, and amounts necessary to

maintain a reserve.

$37.1 million

Federal Agricultural Mortgage

Corporation

Yes Assessments cover estimated cost of

regulation, supervision, and examination.

$0.3 million

National Consumer Cooperative Bank Yes Reimbursement for the costs of conducting

any examination or audit.

$0.1 million

Federal Housing Finance Board

Federal Home Loan Banks Yes Assessments cover expenses and are

levied 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.

$15.7

Office of Federal Housing Enterprise Oversight

Federal National Mortgage Corporation

Federal Home Loan Corporation

Yes

Yes

Assessments cover reasonable costs and

expenses, including examination, and are

levied on the basis of the ratio of each

enterprise’s total assets to total combined

assets of both enterprises.

$9.2 million

$6.3 million

Risk Management Agency

Federal Crop Insurance Corporation No Not applicable Not applicable

Securities and Exchange Commission

Securities Investor Protection Corporation Noa Not applicable Not applicable

Note: Italics used to identify government-sponsored enterprises.

aSEC levies fees on the securities industry and not directly on the Securities Investor Protection

Corporation.

Source: Federal regulators listed above.

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Indicators of Potential

Exposure

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

19Defined-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.

Page 15 GAO/GGD-98-125 Financial Services Institutions’ Exposure
B-278877 

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

20The 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.

21Housing Enterprises: Potential Impacts of Severing Government Sponsorship (GAO/GGD-96-120, May

13, 1996).

22For 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).

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

Page 16 GAO/GGD-98-125 Financial Services Institutions’ Exposure
B-278877 

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 Institutions’ Indicators of Potential Exposure Based on the 1996 Financial Statements

Dollars in millions

Institution name Assets Liabilities

Explicit federal

backing

Commitments and

contingencies

Government corporations

Alternative Agricultural Research and

Commercialization Corporation

N.A.a N.A.a Yes N.A.a

Commodity Credit Corporation $17,874 $15,810 Yes $36,954

Community Development Financial Institutions

Fund

93 10 Yes 39

Export-Import Bank of the United States 11,958 9,985 Yes 55,809

Federal Crop Insurance Corporation 2,756 1,827 No 26,800

Federal Deposit Insurance Corporation 48,130 5,579 Yes 2,691,951

Federal Housing Administration 20,521 24,364 Yes 434,833

Government National Mortgage Association 5,042 509 Yes 529,600b

National Credit Union Administration 4,326 179 Yes 275,543

(continued)

Page 17 GAO/GGD-98-125 Financial Services Institutions’ Exposure
B-278877 

Dollars in millions

Institution name Assets Liabilities

Explicit federal

backing

Commitments and

contingencies

Overseas Private Investment Corporation 3,081 391 Yes 37,622c

Pension Benefit Guaranty Corporation 12,548 11,555 No 1,093,151d

Rural Telephone Bank 1,916 552 Yes 880

Government-sponsored enterprises

Farm Credit System $73,254 $62,664 No $41,958

Federal Agricultural Mortgage Corporation 603 556 No 254

Federal Home Loan Banks 292,035 275,159 No 333,909

Federal Home Loan Mortgage Corporation 173,866 167,135 No 597,765

Federal National Mortgage Association 351,041 338,268 No 782,000

Student Loan Marketing Association 47,630 46,582 No 60,237

Other institutions

Farm Credit System Insurance Corporation $1,169 $130 Noe $62,092

National Consumer Cooperative Bank 839 714 No 107

Neighborhood Reinvestment Corporation 6 4 No 10

Securities Investor Protection Corporation 1,053 31 No 5

aNot applicable. The Corporation did not begin operation as a wholly owned government

corporation until fiscal year 1997.

bThe 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.

cThe 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.

dData 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.

eThe 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.

Page 18 GAO/GGD-98-125 Financial Services Institutions’ Exposure
B-278877 

Readiness in

Achieving Year 2000

Compliance

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.

24GAO 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.

Page 19 GAO/GGD-98-125 Financial Services Institutions’ Exposure
B-278877 

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

Readiness phase

Institution name Aware Assess Renovate Validate Implement

Government corporations

Alternative Agricultural

Research and

Commercialization Corporationa

Completed Completed Completed Completed In progress

Commodity Credit Corporation Completed In progress In progress In progress In progress

Community Development

Financial

Institutions Fund

Completed In progress Not begun Not begun Not begun

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

Federal Crop Insurance

Corporation

Completed Completed In progress Not begun In progress

Federal Deposit Insurance

Corporationa

Completed In progress In progress In progress In progress

Federal Housing 

Administration

Completed Completed In progress In progress In progress

Government National

Mortgage Association

Completed In progress In progress In progress In progress

National Credit Union

Administrationa

Completed Completed In progress In progress In progress

Overseas Private Investment

Corporationa

Completed In progress Not begun Not begun Not begun

Pension Benefit Guaranty

Corporationa

Completed Completed In progress In progress In progress

Rural Telephone Bank Completed Completed Completed In progress Not begun

Government-sponsored enterprises

Farm Credit System Completedb Completedb In progressb In progressb In progressb

Federal Agricultural Mortgage

Corporation

Completed Completed In progress Not begun Not begun

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

Federal Home Loan Mortgage

Corporation

Completed In progress In progress In progress In progress

Federal National Mortgage

Association

Completed Completed In progress In progress In progress

Student Loan Marketing

Association

Completed Completed In progress In progress In progress

Other institutions

Farm Credit System Insurance

Corporationa

Completed Completed Completed In progress In progress

National Consumer

Cooperative Bank

Completed Completed In progress In progress Not begun

(continued)

Page 20 GAO/GGD-98-125 Financial Services Institutions’ Exposure
B-278877 

Readiness phase

Institution name Aware Assess Renovate Validate Implement

Neighborhood Reinvestment

Corporationa

Completed Completed In progress Not begun In progress

Securities Investor Protection

Corporation

Completed Completed In progress In progress In progress

aInstitution either had or planned an external assessment of its Year 2000 status.

bData 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.

Page 21 GAO/GGD-98-125 Financial Services Institutions’ Exposure
B-278877 

Table 7: Regulators’ Actions to Address Year 2000 Readiness of Entities

Year 2000 conversion efforts

Regulator

Issued

guidance

Developed

examination

procedures

Required

external

auditor reviews

Conducted

examinations

Required

reports Other

Department of the Treasury

 Student Loan Marketing

 Association

No No No No Yes Meetings held

with Year 2000

project team

Farm Credit Administration

 Farm Credit System

 Federal Agricultural

 Mortgage Corporation

 National Consumer

 Cooperative Bank

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Planned for

1998

Yes

Yes

Yes

Task force and

database

established

No

No

Federal Housing Finance

Board

 Federal Home Loan

 Banks

Yes Yes Yes Yes Yes Newsletters,

meetings with

internal auditors

and information

technology

directors

Office of Federal Housing

Enterprise Oversight

 Federal Home Loan

 Mortgage Corporation

 Federal National

 Mortgage

 Association

Yes

Yes

Yes

Yes

No

No

Yes

Yes

Yes

Yes

Quarterly

briefings

Quarterly

briefings

Risk Management Agency

 Federal Crop Insurance Yes No Yes No Under

consideration

No

Securities and Exchange

Commission

 Securities Investor

 Protection Corporation

No No No No Yes Informal

discussions on

efforts

Sources: Federal regulators listed above.

Page 22 GAO/GGD-98-125 Financial Services Institutions’ Exposure
B-278877 

Scope and

Methodology

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.

25For 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).

Page 23 GAO/GGD-98-125 Financial Services Institutions’ Exposure
B-278877 

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

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

Page 24 GAO/GGD-98-125 Financial Services Institutions’ Exposure
B-278877 

We did our work between November 1997 and April 1998 in accordance

with generally accepted government auditing standards.

Agency Comments

and Our Evaluation

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

Page 25 GAO/GGD-98-125 Financial Services Institutions’ Exposure
B-278877 

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.

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

Page 26 GAO/GGD-98-125 Financial Services Institutions’ Exposure
Page 27 GAO/GGD-98-125 Financial Services Institutions’ Exposure
Contents

Letter 1

Appendix I 

Financial Services

Institutions Purposes

and Funding Sources

30

Appendix II 

Selected Oversight

Mechanisms and

Controls by Financial

Services Institution

39

Appendix III 

Self-Reported

Adherence to Selected

Federal Statutes That

Promote

Accountability and

Control

40

Appendix IV 

Financial Services

Institution Regulators’

Enforcement

Authority

43

Appendix V 

Additional Financial

Information for

Institutions

45

Page 28 GAO/GGD-98-125 Financial Services Institutions’ Exposure
Contents

Appendix VI 

Comments From the

Office of Management

and Budget

48

Appendix VII 

Major Contributors to

This Report

49

Related GAO Products 52

Tables Table 1: Financial Services Institutions 7

Table 2: Reported Coverage or Adherence of Financial Services

Institutions to Selected Oversight Mechanisms and Controls

9

Table 3: Regulatory and Supervisory Authority of the Six

Financial Services Institutions’ Regulators

12

Table 4: Federal Regulators’ Assessments and Fee Authority 14

Table 5: Financial Services Institutions’ Indicators of Potential

Exposure Based on the 1996 Financial Statements

17

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

Institutions

20

Table 7: Regulators’ Actions to Address Year 2000 Readiness of

Entities

22

Table III.1: Self-Reported Adherence to Selected Federal Statutes 41

Table IV.1: Selected Enforcement Authorities of Financial

Services Institutions’ Regulators

44

Abbreviations

CFO Act Chief Financial Officers Act

DCI data collection instrument

FCR Act 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

OIG Office of Inspector General

OMB Office of Management and Budget

SEC Securities and Exchange Commission

Page 29 GAO/GGD-98-125 Financial Services Institutions’ Exposure
Appendix I 

Financial Services Institutions Purposes and

Funding Sources

Institution name Purpose Funding sources

Government corporations

Alternative Agricultural

Research and

Commercialization

Corporation

Foster development and

commercialization of new

nonfood, nonfeed products

derived from agricultural

and forestry materials and

animal by-products

Receives annual

appropriations from

Congress and operates

under a revolving fund from

which repayments are used

to fund other projects.

Commodity Credit

Corporation

Stabilize, support, and

protect farm income and

prices; assist in maintaining

balanced and adequate

suppliers of agricultural

commodities and their

products; and facilitate the

orderly distribution of

commodities. It also carries

out assigned foreign

assistance activities, such

as guaranteeing the credit

sale of U.S. agricultural

products abroad.

Corporation has capital

stock of $100 million held

by the U.S. Treasury and

has authority to borrow up

to $30 billion collectively

from the U.S. Treasury,

private lending agencies,

and other sources. The

corporation receives annual

appropriations for its past

losses. In addition, the

corporation receives

appropriations for the

subsidy portion of its export

credit activities as required

by the Federal Credit

Reform Act.

Community Development

Financial Institutions Fund

Provide financial assistance

through equity investments,

deposits, grants, loans, and

technical assistance to new

and existing community

development financial

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.

Funding is provided

through congressional

appropriations. 

Funds could be generated

from returns on equity

investments in community

development financial

institutions.

Export-Import Bank of the

United States

Aid in the financing and

promotion of U.S. exports

by providing export credit

support through direct loan,

loan guarantee, and

insurance programs.

Has capital stock of $1

billion purchased by the

U.S. Treasury; the bank

receives annual

appropriations and can

issue up to $6 billion in debt

obligations for purchase by

the U.S. Treasury.

(continued)

Page 30 GAO/GGD-98-125 Financial Services Institutions’ Exposure
Appendix I 

Financial Services Institutions Purposes and

Funding Sources

Institution name Purpose Funding sources

Federal Crop Insurance

Corporation

Improve the economic

stability of U.S. agriculture

through a sound system of

crop insurance and provide

the means for the research

and experience helpful in

devising and establishing

such insurance. Offers

catastrophic crop insurance

to cover 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.

Crop insurance program is

financed primarily through

general fund appropriations

and farmer-paid premiums.

It is authorized to use funds

from the issuance of capital

stock, subscribed to by the

United States for working

capital purposes.

Federal Deposit Insurance

Corporation

Promote stability of and

public confidence in the

nation’s banking system by

providing deposit insurance

to banks and thrifts and

supervise and examine

state-chartered banks that

are not members of the

Federal Reserve System.

Primarily funded from (1)

interest earned on

investments in U.S.

Treasury obligations, (2)

bank and thrift assessment

premiums, and (3) income

earned on and funds

received from the

management and

disposition of 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

insurance to borrowers that

the conventional market

does not adequately

service: first-time home

buyers, minorities, lower

income families, and

residents of underserved

areas. It underwrites

single-family, multifamily,

property improvement, and

manufacturing home loans.

Receives appropriations

and generates additional

income from investments in

U.S. government securities

funded by insurance

premiums.

(continued)

Page 31 GAO/GGD-98-125 Financial Services Institutions’ Exposure
Appendix I 

Financial Services Institutions Purposes and

Funding Sources

Institution name Purpose Funding sources

Government National

Mortgage Association

Support the government’s

housing objectives by

establishing secondary

market facilities for

residential mortgages,

guaranteeing

mortgage-backed securities

composed of Federal

Housing

Administration-insured or

Veterans Affairs-guaranteed

mortgage loans that are

issued by private lenders .

Uses assessments of

commitment, guarantee,

and other fees of

Government National

Mortgage Association

mortgage-backed securities

issuers to cover costs and

to fund a reserve against

possible future payments

under the guarantee.

National Credit Union

Administration

Charter new federal credit

unions, supervise

established federal credit

unions, make periodic

examinations of the credit

unions’ financial condition

and operating practices,

and provide administrative

services. In addition, it

administers (1) a fund that

insures member share

deposits in all federal credit

unions and in qualifying

state credit unions that

request insurance, (2) a

Central 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.

The deposit insurance fund

is funded by premiums paid

by member credit unions, a

1-percent deposit from

insured credit unions, and

income generated by their

investment. The Central

Liquidity Facility is funded

primarily by stock

subscriptions from credit

unions and borrowings (up

to $600 million) from the

Federal Financing Bank.

NCUA also has the authority

to borrow up to $100 million

from the U.S. Treasury for

the deposit insurance fund.

Overseas Private Investment

Corporation

Promote economic growth

in developing countries by

encouraging U.S. private

investment in those

countries. It encourages

U.S. investors by financing

businesses through loans

and loan guarantees,

supporting private

investment funds that

provide equity for U.S.

companies investing in

overseas projects, insuring

investments against a

broad range of political

risks, and engaging in

outreach activities.

Income is derived primarily

from (1) interest earnings on

invested assets, (2)

premiums, (3) recoveries,

and (4) fees. In addition, it

has the authority to borrow

up to $100 million from the

U.S. Treasury. It also

receives annual

appropriations for the

subsidy portion of its credit

activities.

(continued)

Page 32 GAO/GGD-98-125 Financial Services Institutions’ Exposure
Appendix I 

Financial Services Institutions Purposes and

Funding Sources

Institution name Purpose Funding sources

Pension Benefit Guaranty

Corporation

Protect the retirement

income of participants and

beneficiaries covered by

private sector

defined-benefit pension

plans if single-employer

plans terminate or if

multiemployer plans are

unable to pay benefits.

Receives funds from

premiums collected from

ongoing pension plans,

investment income,

terminated plan assets, and

recoveries from sponsors of

terminated plans. In

addition, it has the authority

to borrow up to $100 million

from the U.S. Treasury.

Rural Telephone Bank Provide a supplemental

source of financing for

telecommunications

borrowers under the Rural

Utilities Service’s

telecommunications loan

program. The Rural

Telephone Bank assists

rural electric and

telecommunications

organizations in obtaining

financing to provide

services in rural areas. The

Bank lends to rural

telecommunications

organizations.

Equity capital consisting of

class A stock purchased by

the United States and

classes B and C stock

purchased by bank

borrowers, organizations

eligible to become

borrowers, and

organizations controlled by

borrowers. In addition,

income is generated from

interest charged on its

loans. The Rural Telephone

Bank also receives annual

appropriations for the

subsidy portion of its credit

activities.

Government-sponsored enterprises

Farm Credit System Provide privately financed

credit to agricultural and

rural communities. Its

services include long-term

real estate loans, short- and

intermediate-term loans to

agricultural producers,

credit and mortgage life or

disability insurance, various

types of crop insurance,

estate planning,

recordkeeping services, tax

planning and preparation,

and consulting.

Proceeds from sale of

systemwide debt securities

and assessments of system

institutions. In addition to

revenues from its lending

activities, system banks and

associations receive

investment income from

investments held for the

purposes of maintaining a

liquidity reserve, managing

surplus funds, and

managing interest rate risk.

(continued)

Page 33 GAO/GGD-98-125 Financial Services Institutions’ Exposure
Appendix I 

Financial Services Institutions Purposes and

Funding Sources

Institution name Purpose Funding sources

Federal Agricultural

Mortgage Corporation

Foster the development of a

secondary market for

mortgage loans secured by

first liens on agricultural real

estate or rural housing by

guaranteeing the timely

payment of principal and

interest on securities

representing interest in, or

obligations backed by,

such loans. It also

guarantees the timely

payment of principal and

interest on securities

backed by portions of farm

ownership and farm

operating loans, rural

business and community

development loans, and

certain other loans

guaranteed by the

Department of Agriculture.

Derives financial support

and funding from sale of

common and preferred

stock, issuance of debt

obligations, gain on sale of

guaranteed loan-backed

securities, guarantee fees,

and income from

investments. The Secretary

of the U.S. Treasury is

authorized to purchase

obligations of this entity in

cumulative amounts not to

exceed $1.5 billion for the

purpose of fulfilling the

entity’s guarantee

obligations.

Federal Home Loan Banks Help provide access to

housing by making loans,

called advances, and

providing other credit

products and services to

over 6,400 member

commercial banks, savings

associations, insurance

companies, and credit

unions. The Federal Home

Loan Bank System consists

of 12 Federal Home Loan

Banks and the Office of

Finance.

Derives funding from the

sale of consolidated

obligations to the public;

other sources of lendable

funds include members’

deposits and capital. The

Secretary of the U.S.

Treasury is authorized, at

the Secretary’s discretion,

to purchase up to $4 billion

in the Federal Home Loan

Bank System’s obligations.

Federal Home Loan

Mortgage Corporation

Provide stability in the

secondary market for

residential mortgages,

provide ongoing assistance

to the secondary market for

residential mortgages, and

promote access to

mortgage credit throughout

the nation by increasing the

liquidity of mortgage

investments and improving

the distribution of

investment capital for

residential mortgage

financing.

Sale of capital stock and

mortgage-backed

securities, the issuance of

debt obligations, interest,

and fee income. The

Secretary of the U.S.

Treasury is authorized to

purchase, at the Secretary’s

discretion, up to $2.25

billion of the Federal Home

Loan Mortgage

Corporation’s obligations.

(continued)

Page 34 GAO/GGD-98-125 Financial Services Institutions’ Exposure
Appendix I 

Financial Services Institutions Purposes and

Funding Sources

Institution name Purpose Funding sources

Federal National Mortgage

Association

Provide stability in the

secondary market for

residential mortgages,

provide ongoing assistance

to the secondary market for

residential mortgages, and

promote access to

mortgage credit throughout

the nation by increasing the

liquidity of mortgage

investments and improving

the distribution of

investment capital for

residential mortgage

financing.

Sale of capital stock and

mortgage-backed

securities, the issuance of

debt obligations, interest,

and fee income. The

Secretary of the U.S.

Treasury is authorized, at

the Secretary’s discretion,

to buy up to $2.25 billion of

the Federal National

Mortgage Association’s

obligations.

Student Loan Marketing

Association

Expand funds available for

student loans by promoting

liquidity in the student loan

marketplace through

secondary market

purchases. Its products and

services include student

loan purchases,

commitments to purchase

student loans, and secured

advances to originators of

student loans. It also offers

operational support to

originators of student loans

and to postsecondary

education 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.

Issuance of debt securities

to the public and domestic

and overseas capital

markets is the primary

means of financing. Other

sources of financing include

the sale of common and

preferred stock, the

securitization of its student

loans, and interest income.

The Secretary of the U.S.

Treasury is authorized to

purchase up to $1 billion in

the Student Loan Marketing

Association’s obligations.

Other institutions

Farm Credit System

Insurance Corporation

Ensure the timely payment

of principal and interest on

Farm Credit System debt

obligations purchased by

investors.

Collects insurance

premiums from Farm Credit

System member banks to

pay administrative

expenses and fund

insurance reserves.

(continued)

Page 35 GAO/GGD-98-125 Financial Services Institutions’ Exposure
Appendix I 

Financial Services Institutions Purposes and

Funding Sources

Institution name Purpose Funding sources

National Consumer

Cooperative Bank

Support eligible

cooperatives with credit

and technical assistance

and encourage

broad-based ownership,

control, and participation in

the Bank. In general,

cooperatives eligible for

Bank loans and services

are organizations operating

on a cooperative,

not-for-profit basis to

produce or furnish goods,

services, or facilities

primarily for the benefit of

their member-stockholders

who are the ultimate

consumers.

Primary source of funding is

from private lenders. Its

major creditors are banks

and insurance companies.

Initial funding was provided

through Treasury purchases

of its class A stock. The

Treasury-held stock was

subsequently exchanged

for class A notes that must

be repaid by October 31,

2020.

Neighborhood Reinvestment

Corporation

Conduct programs to

stimulate the development

of local public/private

resident partnerships

committed to reversing

neighborhood decline. It

works with financial

institutions and local

governments to stimulate

reinvestment in locally

selected neighborhoods by

offering rehabilitation and

financial services to

community residents.

Federal appropriations and

nonfederal funding, such as

contributions from local

government agencies and

private foundations, and

other revenue sources.

(continued)

Page 36 GAO/GGD-98-125 Financial Services Institutions’ Exposure
Appendix I 

Financial Services Institutions Purposes and

Funding Sources

Institution name Purpose Funding sources

Securities Investor Protection

Corporation

Afford certain protections

for customers who

experience loss as a result

of broker-dealer failure and

promote investor

confidence in the nation’s

securities markets.

Members of the Corporation

are generally registered

broker-dealers and all

persons who are members

of a national securities

exchange.

Assessments collected from

its members and interest

earned from investments in

U.S. government securities.

It is authorized to maintain

confirmed lines of credit

with banks and other

financial institutions.

Additionally, the Securities

and Exchange Commission

is authorized to make up to

$1 billion in loans to the

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 makes grants,

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.

Congressional

appropriations.

National Sheep Industry

Improvement Center

Promote activities to

strengthen and enhance

production or marketing of

sheep and goats 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.

Has funding through

appropriations placed in a

revolving fund.

(continued)

Page 37 GAO/GGD-98-125 Financial Services Institutions’ Exposure
Appendix I 

Financial Services Institutions Purposes and

Funding Sources

Institution name Purpose Funding sources

Presidio Trust Maintain and lease property

in the Presidio of San

Francisco consistent with

the surrounding National

Park Service lands.

Congressional

appropriations; also

authorized to borrow up to

$50 million from the U.S.

Treasury, but only if the

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.

Page 38 GAO/GGD-98-125 Financial Services Institutions’ Exposure
Appendix II 

Selected Oversight Mechanisms and

Controls by Financial Services Institution

Institution name External audit OIG authority Credit rating Internal audit

Government corporations

Alternative Agricultural Research and

Commercialization Corporation

Yes Yes No No

Commodity Credit Corporation Yes Yes No No

Community Development Financial Institutions Fund Yes Yes No No

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

Federal Crop Insurance Corporation Yes Yes No No

Federal Deposit Insurance Corporation Yes Yes No Yes

Federal Housing Administrationa Yes Yes No No

Government National Mortgage Association Yes Yes No No

National Credit Union Administration Yes Yes No No

Overseas Private Investment Corporation Yes Yes No No

Pension Benefit Guaranty Corporationa Yes Yes No No

Rural Telephone Bank Yes Yes No No

Government-sponsored enterprises

Farm Credit System Yes No Yes Yesb

Federal Agricultural Mortgage Corporation Yes Yes No No

Federal Home Loan Banks Yes No Yes Yes

Federal Home Loan Mortgage Corporation Yes No Yes Yes

Federal National Mortgage Association Yes No Yes Yes

Student Loan Marketing Association Yes No Yes Yes

Other institutions

Farm Credit System Insurance Corporation Yes Yes No No

National Consumer Cooperative Bank Yes No Yes Yes

Neighborhood Reinvestment Corporation Yes No Yes Yes

Securities Investor Protection Corporation Yes No No No

aInstitution required to have annual reports generated on its actuarial soundness.

bAll 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.

Page 39 GAO/GGD-98-125 Financial Services Institutions’ Exposure
Appendix III 

Self-Reported Adherence to Selected

Federal Statutes That Promote

Accountability and Control

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.1). 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.

Page 40 GAO/GGD-98-125 Financial Services Institutions’ Exposure
Appendix III 

Self-Reported Adherence to Selected

Federal Statutes That Promote

Accountability and Control

Table III.1: Self-Reported Adherence to Selected Federal Statutes

Institution name GCCA GPRA CFO Act FMFIA FCR Act

Government corporations

Alternative Agricultural

Research and

Commercialization Corporation

Yes Yes Yes Yes Yes

Commodity Credit Corporation Yes Yes Partiala Partiala Partiala

Community Development

Financial Institutions Fund

Partial Yes Yes Yes Yes

Export-Import Bank of the

United States

Yes Yes Yes Yesb Yes

Federal Crop Insurance

Corporation

Yes Yes Yes Yes Yes

Federal Deposit Insurance

Corporation

Yes Yesc Yesb Yesb No

Federal Housing Administration Yes Yes Yes Yes Yes

Government National

Mortgage Association

Yes Yes Yes Yes Yes

National Credit Union

Administration

Yes Yes Yes Partiala,b No

Overseas Private Investment

Corporation

Yes Yes No Partiala,b Partiala,b

Pension Benefit Guaranty

Corporation

Yes Yes Partiala Yesb Yesb

Rural Telephone Bank Yes Yes Yes Yes Yes

Government-sponsored enterprises

Farm Credit System No No No No No

Federal Agricultural Mortgage

Corporation

No No No No No

Federal Home Loan Banks Yes No No Yes No

Federal Home Loan Mortgage

Corporation

No No No No No

Federal National Mortgage

Association

No No No No No

Student Loan Marketing

Association

No No No No No

(continued)

Page 41 GAO/GGD-98-125 Financial Services Institutions’ Exposure
Appendix III 

Self-Reported Adherence to Selected

Federal Statutes That Promote

Accountability and Control

Institution name GCCA GPRA CFO Act FMFIA FCR Act

Other institutions

Farm Credit System Insurance

Corporation

No Yes Partiala,b Partiala,b Yes

National Consumer

Cooperative Bank

No No No No No

Neighborhood Reinvestment

Corporation

Yes Yesb Yesb Yesb No

Securities Investor Protection

Corporation

No No No No No

aThe term partial was used to describe institutions that indicated they were covered by or

voluntarily adhered to only selected requirements of a federal statute.

bInstitution indicated that it voluntarily adhered to the statute.

cUnder 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.

Page 42 GAO/GGD-98-125 Financial Services Institutions’ Exposure
Appendix IV 

Financial Services Institution Regulators’

Enforcement Authority

As agreed with your office, we obtained information on the enforcement

authorities of the regulators covered in this report (see table IV.1). 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.1. Some of the regulators reported having

formal enforcement authorities in addition to those captured in table IV.1.

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.

Page 43 GAO/GGD-98-125 Financial Services Institutions’ Exposure
Appendix IV 

Financial Services Institution Regulators’

Enforcement Authority

Table IV.1: Selected Enforcement Authorities of Financial Services Institutions’ Regulators

Regulator (regulated

institution)

Written

agreement

Cease and

desist order

Suspension,

prohibition, or

removal action

Civil money

penalty Conservatorship

Termination of

participation or

coverage

Department of the Treasury

 Student Loan

 Marketing

 Association

No No No No No No

Farm Credit Administration

 Farm Credit System

 Federal Agricultural

 Mortgage

 Corporation

 National Consumer

 Cooperative Bank

Yes

No 

No

Yes

Yes 

No

Yes

Yes 

No

Yes

Yes 

No

Yes

Yes 

No

No

No 

No

Federal Housing Finance

Board

 Federal Home Loan

 Banks

Yes No Yes No Yes No

Office of Federal Housing

Enterprise Oversight

 Federal Home Loan

 Mortgage

 Corporation

 Federal National

 Mortgage

 Corporation

Yes

Yes

Yes

Yes

No

No

Yes

Yes

Yes

Yes

No

No

Risk Management Agency

 Federal Crop

 Insurance

 Corporation

No No No No No No

Securities and Exchange

Commission

 Securities Investor

 Protection

 Corporation

No No No No No No

Source: Federal regulators listed in the table above.

Page 44 GAO/GGD-98-125 Financial Services Institutions’ Exposure
Appendix V 

Additional Financial Information for

Institutions

Dollars in millions

Institution name

Net income

(loss) in

fiscal year

1996

Treasury

borrowing

authority a

Total

commitments/contingencies

(FY 1996)

Items included in total

commitments/contingencies

Government corporations

Alternative Agricultural

Research and

Commercialization

Corporation

N/Ab none N/Ab N/Ab

Commodity Credit Corporation ($3,675) $30,000 $36,954 Production flexibility contracts,

letters of commitment, purchasing

commitments, export credit

guarantees, ground waste

contamination, market access

program

Community Development

Financial Institutions Fund

0 none 39 Capital leases, grants

Export-Import Bank of the

United States

1,241 6,000 55,809 Off-balance sheet financial

instruments, outstanding loans

receivable, outstanding

subrogated claims

Federal Crop Insurance

Corporation

(1,621) none 26,800 Insurance-in-force

Federal Deposit Insurance

Corporation

9,307 30,000c 2,691,951 Capital leases, letters of credit,

pledged securities, receivables

from bank/thrift resolutions,

insured deposits, asset

securitization guarantees,

anticipated failures of insured

institutions, litigation losses

Federal Housing

Administration

(3,843) 82 434,833 Mortgage insurance in force,

section 221(g)(4) program

debentures

Government National

Mortgage Association

516 none 529,600 Total guaranteed

mortgage-backed securities,

commitments to guarantee

mortgage-backed securities

National Credit Union

Administration

178 700d 275,543 Capital leases, unsecured term

notes, insured deposits

Overseas Private Investment

Corporation

209 100 37,622e Operating leases, insurance

coverage exposure, pending

insurance claims, investment

guarantees, outstanding claims

settlement guarantees,

undisbursed commitments on

investment guarantees

Pension Benefit Guaranty

Corporation

1,116 100 1,093,151f Insured pension plans, operating

leases

(continued)

Page 45 GAO/GGD-98-125 Financial Services Institutions’ Exposure
Appendix V 

Additional Financial Information for

Institutions

Dollars in millions

Institution name

Net income

(loss) in

fiscal year

1996

Treasury

borrowing

authority a

Total

commitments/contingencies

(FY 1996)

Items included in total

commitments/contingencies

Rural Telephone Bank 880 none 880 Capital leases, off-balance sheet

financial instruments

Government-sponsored enterprises

Farm Credit System 1,055 none 41,958 Commitments to extend credit,

standby letters of credit, interest

rate swaps, forwards and futures

contracts, interest rate caps,

floors, and other options contracts

Federal Agricultural Mortgage

Corporation

1 1,500 254 Capital leases, loan purchase

commitments, outstanding

principal balance of securities

guaranteed and not held in

portfolio, forward sales contracts

Federal Home Loan Banks 1,330 4,000 333,909 Commitments for 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 Loan

Mortgage Corporation

1,243 2,250 597,765 Outstanding commitments to

purchase mortgages, off-balance

sheet financial instruments

(mortgage participation

certificates, derivative financial

instruments)

Federal National Mortgage

Association

2,725 2,250 782,000 Guaranteed mortgage-backed

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 Marketing

Association

419 1,000 60,237 Capital leases, commitments to

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

(continued)

Page 46 GAO/GGD-98-125 Financial Services Institutions’ Exposure
Appendix V 

Additional Financial Information for

Institutions

Dollars in millions

Institution name

Net income

(loss) in

fiscal year

1996

Treasury

borrowing

authority a

Total

commitments/contingencies

(FY 1996)

Items included in total

commitments/contingencies

Farm Credit System

Insurance Corporation

137 none 62,092 Financial Assistance Corporation

bonds, insured Farm Credit

System debt obligations

National Consumer

Cooperative Bank

11 none 107 Capital leases, standby letters of

credit

Neighborhood Reinvestment

Corporation

(>1) none 10 Capital leases, mortgage

guarantees

Securities Investor Protection

Corporation

38 1,000 5 Capital leases, line of credit with

bank consortium

aThis 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.

bNot applicable. The Corporation did not begin operation as a wholly owned government

corporation until fiscal year 1997.

cFDIC 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.

dThe 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.

eThe 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.

Page 47 GAO/GGD-98-125 Financial Services Institutions’ Exposure
Appendix VI 

Comments From the Office of Management

and Budget

Page 48 GAO/GGD-98-125 Financial Services Institutions’ Exposure
Appendix VII 

Major Contributors to This Report

General Government

Division, Washington,

D.C.

Desiree W. Whipple, Communications Analyst

San Francisco Office Harry Medina, Evaluator-in-Charge

Sharon L. Caudle, Senior Analyst

Page 49 GAO/GGD-98-125 Financial Services Institutions’ Exposure
Page 50 GAO/GGD-98-125 Financial Services Institutions’ Exposure
Page 51 GAO/GGD-98-125 Financial Services Institutions’ Exposure
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).

(233549) Page 52 GAO/GGD-98-125 Financial Services Institutions’ Exposure
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