Summary

GAO summarized information on issues the federal government should consider relating to the financial services industry, including the: (1) handling of troubled financial institutions; (2) regulation of mergers between banking and nonbanking institutions; (3) regulation of linked securities and futures markets; and (4) regulation of global capital markets.

GAO noted that: (1) almost a third of the savings and loan industry is insolvent, with less than $4 billion of tangible capital backing $1.3 trillion of customer deposits; (2) the Federal Savings and Loan Insurance Corporation is insolvent by $14 billion; (3) progressive relaxation of bank restrictions threatens the banking system's safety and soundness; and (4) links among previously separate financial markets and other countries' markets represent possible dangers for the national economy. GAO believes that the financial services industry requires a fresh, innovative regulatory approach offering: (1) protection against unacceptable financial damage to financial institutions and markets and individual investors; (2) encouragement of innovation and flexibility to keep up with rapidly evolving market developments; and (3) permission for markets to seek their own levels of value without undue interference.