Summary

Pursuant to a legislative requirement, GAO provided information on the: (1) Federal Home Loan Bank Board's (FHLBB) Net Worth Certificate Program; and (2) condition of thrift institutions with the greatest potential for failure.

GAO found that: (1) the legislative authority for the Net Worth Certificate Program expired in 1986, and FHLBB has not reinstated it; (2) although the total number of thrifts has declined since 1977, industry assets grew from $434.3 billion to $1,202.8 billion as of mid-year 1987; (3) the average net-worth-to-assets ratio decreased from 5.70 to 3.50 percent; (4) although the overall condition of the thrift industry improved after the crisis of 1981 through 1982, thrift profitability declined in the first quarter of 1986 because of poor asset quality; (5) as of June 1987, there were 491 insolvent thrift institutions, and an additional 463 with low net worth; (6) the thrift industry as a whole incurred net losses of $1.6 billion during the second quarter of 1987 as a result of insolvent and poorly capitalized thrift institutions; (7) the industry's mortgage assets portfolio declined while its holdings of mortgage-backed securities rose relative to mortgage loans; (8) the industry was less reliant on deposits as a source of funds; and (9) although there was only a slight increase in holdings of FHLBB advances, other forms of borrowing steadily increased.