The insurance fund that protects depositors when banks fail is dwindling so rapidly that it could be wiped out by a recession or a single big bank failure, forcing taxpayers to cover the costs, the General Accounting Office said yesterday.

The congressional auditing agency said the Federal Deposit Insurance Corp. (FDIC) is "in precarious condition."

Record levels of bank failures, caused primarily by plummeting real estate prices, have eaten up much of the money that was set aside to insure deposits, the GAO said in its annual report to Congress on the health of the big federal bank insurance fund.

The prospect of a second banking crisis stunned members of Congress, who already are wrestling with the economic and political consequences of the massive cleanup of the nation's savings and loan industry. Bank failures and the depletion of the fund are likely to continue, GAO Comptroller Charles A. Bowsher warned the Senate Banking Committee, because banks are using bookkeeping methods that hide their losses, making it difficult for regulators to tell when they are getting into financial trouble.

"We've got a lot of situations out there that could wipe the fund out," said Bowsher. "We could lose the fund, just like we lost the FSLIC {Federal Savings and Loan Insurance Corp.} fund if a significant number of the large banks come to the FDIC for assistance."

If the FDIC fund were to be wiped out, the government would have to use taxpayers' money to keep the promise to protect depositors' accounts. The GAO has not tried to estimate what that might cost.

Taxpayers already are facing up to $500 billion in costs over a 10-year period, including interest, in the cleanup of failed savings and loan institutions.

The FDIC fund already has been drawn down three years in a row and FDIC Chairman L. William Seidman warned this past summer that a severe recession might wipe out all its resources.

The GAO's report, however, is the first official government acknowledgment that taxpayers may be facing a new banking-related burden. Banking committee members suggested prompt action may be necessary to replenish the FDIC fund, either by raising the deposit insurance premiums paid by banks or by appropriating tax money.

"If the sky is not falling, its shaky," said Sen. Richard C. Shelby (D-Ala.) "We better get ready to hold the sky up."

"A similar picture was painted in the mid-1980s with the FSLIC. I hope today we demonstrate we have learned our lessons," said Sen. Jake Garn (R-Utah), recalling that the S&L crisis might have been minimized if Congress had acted sooner.

Noting that the recession warned of by the GAO "may already be here," Committee Chairman Donald W. Riegle Jr. (D-Mich.) said the weak economy, falling real estate prices, the collapse of the junk bond market and sliding stock prices compound the FDIC's problems.

"Taken together, there is a picture here of great economic and fiscal stress," he said.

Riegle said he was particularly worried that many losses that banks have suffered on bad real estate loans have not been reported yet. He asked Bowsher if "it is conceivable we may have unrecognized losses out there that may exceed what is in the fund?"

"That is a fair statement," replied the government's top accountant.

Bowsher said the insurance fund now has only 70 cents of reserves to back up every $100 of bank deposits -- the smallest cushion against losses since the fund was created after the Great Depression -- and it will shrink even more this year.

"The fund's low reserve level accompanied by a recession could lead to ... failures that would exhaust the fund and require taxpayer assistance," he told the Senate panel.

The deposit insurance fund is financed by a small tax paid by banks on their deposits, much as individuals pay premiums for their insurance.

The FDIC recently raised the tax to 19.5 cents per $100 of deposits, the highest level permitted by law.

In the last two years, bank failures have caused the FDIC fund to shrink from $18 billion to $13 billion, Bowsher said, noting that "a $13 billion fund balance could be eliminated by the costs related to the failure of one or more large money-center banks."

None of the banks big enough to wipe out the fund is known to be in trouble today, he added, but that is no guarantee that one of the large banks will not go under.

Looking at bank failures in the past two years, he said, "we found 22 failed without ever appearing on the problem bank list" -- the secret government tally of banks that are in trouble.

Bowsher said the Bank of New England, a huge Boston bank that is struggling to survive, was not on the problem bank list when it first reported financial difficulties earlier this year.

Reviewing the records of 300 of the nation's larger banks as of the end of last year, Bowsher said the GAO found 35 of them "in such severe financial condition that without some form of recapitalization they are likely to fail or require assistance within the next year." Since then, 15 of those banks have gone under, he added.

By law, the FDIC has until 1995 to build reserves of $1.25 for each $100 of deposits. None of the projections made by the FDIC or GAO expects that goal to be met, Bowsher said, or that it would be adequate.

Even if the economy does not slip into recession, the GAO has projected a $2 billion loss in the fund, a sum FDIC chairman Seidman said is "pretty much in line with our numbers." Seidman would not comment on the GAO suggestion that taxpayers could be called upon to aid the fund.

At an American Bankers Association conference in New York, bankers said they do not believe their industry is in jeopardy. "The commercial banking industry is healthy, strong enough to weather a tougher economic climate in the 1990s," said Michael P. Esposito, chief financial officer of Chase Manhattan Corp.