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). 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. 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. Only one of the government corporations, the Federal Crop Insurance Corporation, reported having a safety and soundness regulator. 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. 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. 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 commitments and contingent liability amounts shown reflect the maximum theoretical exposure to the federal government. 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). The recommended completion date for the assessment phase was August 1997. The reported data indicated that the regulators had extensive efforts under way to monitor the Year 2000 conversion efforts of regulated institutions. 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. 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. 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. Its first concern was with the exclusion of numerous government entities that engage in financial services activities that result in potential liabilities. 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.
Why GAO Did This Study

Pursuant to a congressional request, GAO provided information on selected financial services institutions, focusing on: (1) 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; (2) the institutions sponsored, in whole or in part, by the federal government or corporations within the executive branch that engage in financial services activities; (3) 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; (4) the independence and authorities of any safety and soundness regulators for these financial services institutions; (5) 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 (6) the self-reported readiness of these institutions and regulatory efforts to achieve year 2000 compliance.

What GAO Found

GAO noted that: (1) it 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; (2) 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; (3) the oversight mechanisms and controls that financial services institutions were subject to were related to their status as government-sponsored-enterprises or government corporations; (4) 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; (5) the independence of, regulatory authorities of, and fees charged by the six safety and soundness regulators of the nine institutions varied; (6) 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; (7) the primary indicators that GAO 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, and explicit backing of the institution's liabilities, commitments, and contingencies by the federal government; (8) the institutions reported their state of readiness in achieving year 2000 compliance using five phases GAO described in its Year 2000 Assessment Guide; (9) most of the institutions reported that they had completed the awareness and assessment phases, which, according to the GAO assessment guide, should have been completed by the end of August 1997; (10) work in the other phases was either in process or not yet begun; and (11) in addition, the regulators reported various efforts under way to ensure that the regulated institutions would be ready for the year 2000 conversion.