CBO
TESTIMONY
Statement of
Robert D. Reischauer
Director
Congressional Budget Office
before the
Committee on Banking, Housing, and Urban Affairs
United States Senate
April 1, 1992
NOTICE
This statement is not available for public release until
it is delivered at 10:00 a.m. (EST), Wednesday, April 1, 1992. |
Mr. Chairman, I appreciate this opportunity to appear again before your
Committee to discuss the condition of the Bank Insurance Fund (BIF). I
will share with you the Congressional Budget Office's (CBO's) latest baseline
projections of the fund's spending and our analysis of the Administration's
budget submission. I will specifically address its overall projection of
losses, its proposal to convert the budgetary treatment of deposit insurance
from cash to accrual, and its banking reform proposals. I will also offer
some comments on the Administration's plan to emphasize open bank assistance.
Our principal conclusions are the following:
-
Although a large majority of banks appear relatively healthy, the outlook
for a portion of the banking industry remains pessimistic in the near term,
primarily because of the delay in the general economic recovery and continuing
real estate problems. Bank profits have been depressed, but they are now
starting to rebound, and the long-run outlook is more optimistic.
-
CBO projects losses to the BIF to increase in fiscal years 1992 and 1993
before starting to decline. CBO estimates that BIF's net outlays will increase
from $7.4 billion in 1991 to $14.5 billion in 1992 and peak at $17.3 billion
in 1993. Over the period from 1992 through 1995, CBO projects that BIF
will incur losses of $43 billion in resolving failed banks. Under those
circumstances, we estimate that BIF's borrowing authority will be sufficient
to cover its needs and that the borrowing can be repaid from bank premiums
and asset sales over the next decade.
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The President's budget proposes to convert accounting for federal deposit
insurance from a cash to an accrual basis, and to use projected savings
from its proposal to offset other spending on the pay-as-you-go (PAYGO)
scorecard. CBO agrees that budgetary accounting for insurance programs
could be improved, but does not feel that the Administration's proposals
are suitable to implement at this time. Furthermore, no PAYGO savings should
be scored for the policy changes the Administration proposes.
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The Administration also proposes legislation to permit interstate banking
and branching, and it plans to provide open bank assistance. These proposals
deserve serious consideration on their own merit. Interstate banking and
branching may improve the overall efficiency of the banking industry in
the long term, but it will not necessarily translate into higher bank profits
or lower losses to the BIF in the short run. Open bank assistance and other
forms of forbearance run the danger of postponing inevitable consolidation,
while increasing the future cost to the BIF.
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